Macquarie wins four-way fight for Thames Water with £8bn bid

Thames Water, Britain's biggest water company, was sold last night to the acquisitive Australian bank Macquarie for £8bn in a surprise climax to the four-way battle for the business.

Macquarie saw off three other bidders including a partnership between the investment arm of the Gulf state of Qatar and the investment bank UBS which was widely thought to have won the auction for Thames launched this year by its German owner RWE.

The price represents a 20 per cent premium to the regulated asset value of Thames, which has 13 million water and sewage customers and serves a vast area from Gloucestershire in the west to Kent in the east.

Macquarie is paying £4.8bn for Thames' equity and taking on a further £3.2bn of company debt. It cleared the decks for the deal two weeks ago by selling its other UK water business, South East Water, to fellow Australian investment company Hastings Fund Management for £665m.

The failed bidders in the Thames auction - the Qatar consortium, Guy Hands' private-equity firm Terra Firma and Alinta, another Australian infrastructure investor - may now turn their attention elsewhere in the water sector.

Both Severn Trent, which has just demerged its waste business Biffa, and Pennon, the owner of South West Water, are thought to be vulnerable to takeover. AWG, the owner of Anglian Water, has already agreed a £2.3bn bid from the Osprey consortium made up of Canadian and Australian pension funds supported by 3i but may now receive rival bids. However, industry sources pointed out last night that the price being offered for AWG put it on a higher valuation than even Macquarie is paying for Thames.

Macquarie already owns a string of UK assets including airports, motorway service stations and toll roads but Thames is its biggest and most politically sensitive acquisition yet.

Thames has been heavily criticised for missing its leakage targets and yet requesting a drought order at the same time and is also facing a heavy fine from the industry regulator Ofwat for failing to meet guaranteed standards of customer service. Thames leakage rate is around 33 per cent - the worst of any major UK water company and enough to fill 900 Olympic-sized swimming pools each day.

In the five-year period between 2005 and 2010 Thames plans to spend £3bn on its network - which includes 20,000 miles of water mains and 40,000 miles of sewers. Some £1bn of the expenditure will go on mains replacement, including £150m which the company has agreed to finance out of its own pocket under pressure from the regulator.

The RWE supervisory board is due to meet this weekend in Germany to formally approve the deal and the transaction is scheduled to be complete by December. As Macquarie has no other UK water businesses, the transaction will not run into any regulatory problems, although Ofwat will need to be satisfied that Thames will not be over-burdened with debt once under Macquarie's ownership.

RWE was advised on the transaction by Goldman Sachs which ran the auction and closed the bidding process last Saturday morning. The German company had adopted a twin-track approach to the sell-off, preparing the way for a public flotation had the private sale not succeeded. With this in mind, it appointed Jim Forbes, the former chief executive of Scottish & Southern Energy, as Thames' chairman, although he is unlikely to stay now that the company is being bought by Macquarie.