Shanks is new target for Terra Firma after Pennon rejection

Guy Hands, the City financier, has approached Shanks, the waste management group, having been rebuffed in his attempt to buy its larger rival, Pennon.

Guy Hands, the City financier, has approached Shanks, the waste management group, having been rebuffed in his attempt to buy its larger rival, Pennon.

The move was revealed in a Stock Exchange statement yesterday from Shanks, which also said it was not interested in Mr Hands' offer due to "uncertainty" about details of the deal.

At the same time, Pennon confirmed weekend reports that it had been approached by Mr Hands' venture capital vehicle, Terra Firma. Pennon has also rejected the offer.

The two businesses said that, instead, they were in "advanced" talks to merge with each other.

The flurry activity drove shares in both companies higher, with Shanks closing up 5 per cent to 132p and Pennon ending the day up 5 per cent at 736p.

Pennon, a water and sewage business based in Devon, and Shanks have been discussing a possible tie-up for months.

The two sides have accelerated the discussions with the hope of announcing a deal within the next few days, after it emerged at the weekend that Pennon had been approached by Terra Firma.

Shanks also confirmed yesterday that it too had been contacted recently by Terra Firma. Mr Hands had approached Shanks before, but - the company said - had returned with a higher offer and improved terms.

Pennon, which supplies 1.5 million customers with water in Devon, Cornwall and parts of Dorset and Somerset under the South West Water brand, is thought to have offered about £200m for the UK arm of Shanks, a land infill business.

Terra Firma has offered about the same amount. But Shanks said there was "uncertainty over whether Terra Firma's approach would lead to a binding offer".

Meanwhile, Mr Hands has offered in the region of £1bn for Pennon, a premium to the 730.5p the company closed at on Friday, before rumours of the bid surfaced. If he wants either business, it is likely that Mr Hands will have to raise his price. He would find it difficult to buy both Shanks and Pennon because of competition issues. He already owns Waste Recycling Group, Britain's biggest waste-disposal company.

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