AWG's £300m sell-off gift to shareholders

AWG, the former Anglian Water, is to return up to £300m to shareholders when it sells off its international business and a large development site in Manchester.

By Jason Nissé

The group last week rejected a £900m bid approach from Robin Saunders, the financier at German bank WestLB. Ms Saunders told AWG's recently appointed chairman, Peter Hickson, 10 days ago that WestLB would be prepared to offer 510p a share for the company in an agreed bid. This was rejected by Mr Hickson who believes AWG can demonstrate it is worth significantly more than that. AWG shares jumped from 430p before the bid to close at 522p on Friday.

It is understood that WestLB has received broad support from two major shareholders, Scottish Widows and K Capital, a Boston hedge fund, which hold 6.2 per cent of AWG between them. AWG hopes to announce soon that it is about to realise over £250m of cash from disposals. It has put its international division up for sale, though it is unlikely to be sold all at once. The business has a book value of £200m, though AWG may be willing to accept slightly less. AWG is also close to selling Great Northern Warehouse, a Manchester property development, for £70m.

This site was part of AWG's fateful £263m purchase of Morrison Construction in late 2000. Earlier this month, AWG issued a £130m legal action against Sir Fraser Morrison, former chairman of Morrison, and another director claiming they misled AWG prior to the purchase.

Sir Fraser, who denies the claims, says he made a £120m offer for the Manchester site and Morrison's housebuilding division which was rejected by AWG. Mr Hickson is thought to be keen to sell all AWG's property and development interests – valued at £240m.

He also believes the group can release further cash from its regulated water and sewerage business Anglian Water. It hopes it can later this year pay up to £300m to shareholders, the equivalent of about 170p a share. The value of the regulated water business was placed at about £760m, or 430p a share, in a research note published by Deutsche Bank last week. The analyst, Iain Tuner, said this could be boosted by £2 a share if you consider the premium paid in recent deals for Wessex and Southern Water.

Analysts have valued AWG's contracting business, which makes about £25m a year, at up to £150m. Institutional investors have nagging doubts about the management of AWG. Chief executive Chris Mellor made himself highly unpopular with the Morrison acquisition and shareholders have questioned the high costs of AWG's restructuring, with over £100m being paid out in fees to City firms.