AWG mans WestLB defences with £177m payout

AWG, the owner of Anglian Water, shored up its defences against the bid approach from the German bank WestLB yesterday by unveiling plans to return £177m to shareholders.

The payout, equivalent to 100p a share, comes as WestLB's principal finance group, led by Robin Saunders, continues to line up a takeover of AWG. Last month WestLB cleared the decks for a bid by announcing the sale of its existing UK water business, Mid Kent Water.

A spokesman for AWG denied that the return of capital was a defensive move, maintaining it was in line with the group's stated policy of handing back surplus cash to investors whenever it could. AWG paid out £500m to shareholders last year following a complicated refinancing of the company which ended up costing it £130m in fees.

AWG, which ousted its chief executive Chris Mellor last month after criticisms of its stagnating share price and ill-fated move into construction, has already rejected an initial 510p-a-share approach from WestLB, valuing it at £900m.

Analysts believe Ms Saunders will have to bid more than 600p to stand any chance of getting an offer recommended by AWG's executive chairman, Peter Hickson, and the rest of the board.

AWG said the return of capital would be financed from surplus cashflows and achieved by way of an issue of redeemable shares no later than June. At the same time, the group intends to consolidate its shares, offering shareholders four shares for every five they own in a further move to reduce its overall dividend payments.

Group debt at the end of March was £3.25bn – some three times AWG's £1bn market capitalisation – but still lower than most analysts' estimates. Robert Miller-Bakewell of Merrill Lynch reiterated his buy recommendation on AWG, putting a target price on the shares of 600p and a break-up value of 706p.

Although the return of cash will restrict AWG's ability to pay down debt, it aims to bring in more money through the sale of its international water interests and its Great Northern property development in Manchester, which came as part of the Morrison construction acquisition three years ago. The international business has a book value of £200m while Great Northern is valued at £70m.

In a trading update, AWG also said that its regulated water and waste business was continuing to beat the efficiency targets set by the industry regulator Ofwat while the construction business had performed in line with expectations. AWG shares rose 3 per cent to 537p.