Shares in Severn Trent today leapt more than 15% after the FTSE 100 water supplier received a foreign takeover bid which could value it at more than £5 billion.
Canada’s Borealis, the Kuwait Investment Authority and the Universities Superannuation Scheme, a UK pension fund, made the joint approach for Trent, which supplies water to more than 4.2 million households in the UK.
The consortium is thought to be willing to pay up to £23 a share, valuing Severn Trent at £5.3 billion; shares today surged to a record high of 2159p, up 334p, in response.
UK Takeover Panel rules mean the bidders have until 5pm on June 11 to make a firm offer for the water giant, which warned investors: “No proposal has been made and there can be no certainty that an offer will be made or as to the terms of any such offer.”
But a deal could mean that Severn, one of the last major water and sewage firms to remain in British ownership, follows the foreign takeover path of many of its rivals. Recent deals include Northumbrian Water being sold to Hong Kong billionaire Li Ka-shing for £2.4 billion in 2011.
Although analysts have warned that potential upcoming regulatory changes — watchdog Ofwat announces a new five-year price regime next year — could put off potential water supplier buyers, yield-hungry investors have bought into the stable cash flow businesses.
The news prompted shares in fellow water firms United Utilities and Pennon to jump 29.5p to 769p and 33.5p to 699p.
For Borealis, the acquisition of Severn Trent would see it buy into another key British infrastructure. It already owns stakes in assets including High Speed 1, the rail line linking London with the Channel tunnel, and Associated British Ports.
News of the potential deal also comes just a month after Severn Trent’s chief executive Tony Wray (pictured left) – who has been at the helm for nine years — announced he will step down.
The bidders have hired Deutsche Bank for advice, whilst Severn Trent is being advised by Citi and Rothschild; together the banks could pocket as much as £50 million in fees in what some in the City today described as “the return of M&A boom-times”.