Citigroup and HSBC target Kelda for £3bn takeover

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The Independent Online

Kelda, the UK's third biggest water company, has received a £3bn takeover approach from an infrastructure consortium.

The £11-a-share approach from Citigroup and HSBC was confirmed after Kelda's share price jumped. The bid team indicated that investors will also retain any proposed interim dividend in respect of the first half of the year. Shares in the company closed the day 12.6 per cent ahead at £10.55. The Singaporean investment fund company GIC, and Infracapital Partners, the infrastructure fund of Prudential, the insurance group, are also part of the consortium. The approach was at a 17 cent premium to the company's closing share price on Wednesday.

Yorkshire Water is Kelda's principal UK subsidiary, providing water and waste-water services to more than 4.7 million people and 140,000 businesses. Kelda, previously named Yorkshire Water, was formed following water company privatisations in 1989.

Water companies are prime targets for infrastructure funds due to their stable, transparent cash flows, low-risk nature and generous dividend policies. Northumbrian Water, the South West Water owner Pennon, and Severn Trent have all been seen as possible bid targets and shares across the sector bubbled yesterday in the wake of the Kelda announcement. Appetite remains strong for water assets despite the turmoil in the credit markets.

The Australian investment firm Macquarie set a benchmark for UK utilities last year when it bought Thames Water, Britain's largest water company, in a deal that gave it an enterprise value of £8bn.

That was followed last month by a deal for Southern Water, which provides services across Kent, Sussex, Hampshire and the Isle of Wight.

It is due to be bought by a consortium led by investment bank JP Morgan and Australia's Challenger Infrastructure Fund for £4.2bn – a 30 per cent premium to its regulated asset value.

The consortium beat rivals Goldman Sachs and Morgan Stanley to seal the deal. The Anglian Water owner AWG was also sold last year for £2.25bn to a consortium of investors led by Colonial First State, the fund-management arm of the Commonwealth Bank of Australia. And in October, Alinda Infrastructure Fund agreed to buy South Staffordshire Water, which was valued at more than £400m including debt.

In the summer, an independent report criticised Kelda's failure to do more to prevent damage to some parts of Hull following widespread damage to its operation due to flooding which left large parts of Yorkshire under water. However, Kelda said there was no financial impact on the group, which reported an operating profit of £332.7m on sales of £741m last year.

The group's water-services arm signed a 15-year, £700m contract in 2005 to operate and maintain waste water treatment and operations for Welsh Water in south Wales.

Analysts said Kelda was attractive as it has one of the best efficiency ratings of all the water companies.

But the company said there was no certainty that an offer would be made.