The water and waste group Pennon yesterday disclosed that its unsuccessful bid for the rival waste business Shanks cost it £9m - more than a tenth of its pre-tax profits last year.
Pennon, the owner of South West Water and the Viridor waste business, pulled out of the contest for Shanks earlier this week after Guy Hands trumped its offer with a £227.5m agreed bid.
The costs of the abortive bid resulted in Pennon's pre-tax profits for the year to the end of March falling by £1m to £72.3m. The company has taken a £6.5m charge in its 2003-04 accounts and will take a further £2.5m charge in this year's.
Colin Drummond, the executive director at Pennon, who runs Viridor, said the vast bulk of the £9m in costs was made up of lawyers' bills. The transaction had taken six months to negotiate and involved complex legal work to separate Shanks' landfill and gas businesses - the parts that Pennon planned to buy - from its PFI and chemical waste businesses.
Mr Drummond said that despite the setback over Shanks, Pennon still had plenty of scope to expand Viridor through acquisitions. In the last two and a half years it has bought seven waste companies at a cost of £104m.
"There are loads of opportunities landing on my desk but we are ruthlessly driven by shareholder value and if the price is too high we sit on our hands, and that is what happened with Shanks," Mr Drummond added.
Operating profits at South West Water rose 7 per cent to £119m, helped by further cost-cutting. Pennon has applied for a 42 per cent increase in domestic bills over the five-year period starting next April to help pay for a £902m capital spending programme. This would increase the average household bill from £328 to £467 a year.
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