James Moore: Pouring cold water on suitor's advances is right course for Severn Trent

Outlook. Consumer the loser as investors hold whip hand; Astra's buy may not be the remedy it seeks

The Stock Exchange's stalkers are back, it seems, with the interregnum on their activities forced by the financial crisis well and truly over.

First we had Betfair, which nearly caved in when a private equity-led consortium tried to get its hands on the gambling company's books despite having no financing in place for a decidedly questionable and highly conditional proposal. Interestingly, Betfair's shares have held up remarkably well since then.

Now we have Severn Trent, which is attempting to fend off a Canadian-led consortium that is making a big noise about ending its suit just before the Takeover Panel forces it to do just that.

The consortium's advisers are clearly hoping that if they make enough fuss, some of Severn Trent's shareholders will put the thumbscrews on its directors and persuade them to play footsie with the predator, which wants to take the company off the FTSE 100.

There were signs that one or two misguided investors were considering doing that yesterday, which just shows how little the City has learnt from previous mistakes.

The bidders aren't after synergies, or new geographical territories, or a new product that Severn Trent has up its sleeve. They are after the investment.

Severn Trent offers a predictable, and sustainable, long-term income. Its current investors are getting a prospective yield of nearly 4 per cent, and the promise that the dividend will increase at a rate above inflation.

From an investment perspective, it is defensive, predictable, solid and safe, and there's not much like it on the UK stock market, or anywhere else for that matter. Currently, the London Stock Exchange has only one other pure-play water company, plus another that is part of a larger group.

As such, Severn Trent has rarity value to add to its other attractions, which is exactly why the Canadians and their pals want to get their hands on it. Not to mention the value they could extract by employing the sort of creative accounting that some other companies have engaged in to keep their tax bills low. Or non-existent.

All this appears to have gone over the heads of dissident investors, who are reported to be complaining about Severn Trent for not "engaging" with its unwanted suitor. But it's not at all clear what purpose would be served by this. There has been engagement in the past, and the consortium will be well aware of the price that will get things moving. Its members just don't want to pay it, at least if they can help it.

The consortium does, of course, have the option of putting their offer directly to shareholders if they, and their advisers, are convinced of its value. But that's unlikely to happen. It would require it to spend money, to show its cards, and to have the guts to take a risk. The latter is the last thing it wants to be doing. It sees Severn Trent as risk-free. Which is what this is all about, really.

Consumer the loser as investors hold whip hand

What's probably really bothering the consortium is the fun other investors are having with the assets they own.

Take Thames Water, the latest firm that appears to see paying corporation tax as entirely optional. The company – owned by, you've guessed it, a consortium of international investors led by Australia's Macquarie – turns over almost £2bn a year, and makes operating profits of more than £500m. However, it pays next to nothing in corporation tax.

Yesterday, Thames Water claimed it was not evading the levy, it was simply deferring it, because it is investing lots of money in the UK's water infrastructure, and the rules allow it to do this. Another set of rules allows it to increase bills by 6.7 per cent to help fund that investment, but it would probably say that this is an entirely different issue.

The company has been arguing that it pays lots of other taxes, such as business rates, national insurance rates and PAYE, the same specious argument made by many others. Every company pays these, including those that don't treat their corporation tax as a voluntary levy.

Jonson Cox, the chairman of Ofwat, has made noises about the structures deployed by Britain's legion of privately owned water companies, but we've yet to see any concrete action. If Severn Trent's stalker is scared away, it will be because its directors showed they had backbone, as much as any threat to bring an end to the party.

It's a party that needs to end. There are three big stakeholders in the water industry: its customers, who have to buy its products, the state, which regulates and taxes it, and the investors, which own it. The latter are currently dominant because there appears to be little real will on the part of the state to address this situation, leaving the unhappy consumer paddling up a certain creek.

Astra's buy may not be the remedy it seeks

AstraZeneca added another oyster to its growing collection of biotech and drug companies yesterday as it desperately seeks to pep up a pipeline that's running out of patents.

Will the $1bn-plus purchase of Pearl Therapeutics end up being a jewel in its portfolio, or will it result in a nasty case of the side-effects that filter-feeders are inclined to inflict on those that consumer them?

Pearl specialises in a new class of lung treatments that some experts think will dominate the market in future years. The trouble is that Novartis and GlaxoSmithKline are expected to get rival treatments on to the market before Pearl has got its polished. As such, they'll have first mover advantage, which isn't to be sniffed at.

Snorting rather than sniffing is what GSK and Novartis types are probably doing when they look at some of the prices that AstraZeneca has been paying in its desperation, not so much to catch them as simply to stay in the game.

Travel
travel
Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
Sport
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
News
Morrissey pictured in 2013
people
PROMOTED VIDEO
Voices
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Travel
travel
News
Robyn Lawley
people
News
people
News
i100  ... he was into holy war way before it was on trend
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmThe film is surprisingly witty, but could do with taking itself more seriously, says Geoffrey Macnab
News
people
Life and Style
food + drinkVegetarians enjoy food as much as anyone else, writes Susan Elkin
Life and Style
lifeDon't get caught up on climaxing
Life and Style
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star