Outlook: Crossing the pond for a bigger splash
Wednesday 02 June 1999
Yorkshire's acquisition of Aquarion Group, which supplies the well-heeled parts of Connecticut and New York, will take the best part of a year to complete and has to be filtered by two sets of regulators - one of which is, ominously, packed to the gills with consumer representatives.
Yorkshire's little local difficulty in its own backyard, when the chief executive stopped bathing and supplies had to be tankered in day and night, was admittedly four years ago and has largely faded from the memory along with the old management.
Nevertheless, it will be a minor miracle if political capital is not made out of Yorkshire's misfortunes over here when it comes to the regulatory hearings over there.
The fact that it has decided to name itself after the Norse for a stream on high land is not likely to cut much ice. If ScottishPower's experience on the West Coast is anything to go by, where regulatory approval for its PacifiCorp deal is proving to be a tortuous process, then Yorkshire will have its work cut out.
Yorkshire has not travelled quite that far in search of new customers. Nevertheless it still goes to show how desperate it is to escape the clutches of the UK regulator, Ian Byatt, that it has gone all the way to New England.
At five times sales and nearly 18 times pre-tax earnings (including the debt that Yorkshire will inherit) Aquarion does not come cheap. Moreover, it has virtually no headroom to make efficiency gains since Aquarion is already bumping up against the ceiling of its regulated return on capital.
So the 20 per cent premium Yorkshire has splashed out has to be seen largely as the opportunity cost of getting a toehold in the US water market.
Kevin Bond, the new chief exec, reckons the deal will serve as the perfect springboard to make an even bigger splash in the US. He has visions of selling the bulge bracket bankers who make up Aquarion's customer base a whole host of other services such as waste treatment
The other leg of the strategy is to expand by acquisition. The US water industry, with its 64,000 separate entities, is certainly ripe for consolidation. But this deal landlocks Yorkshire in New England. With only 17 quoted companies in the whole of the US water industry against 17,000 in municipal ownership Yorkshire may not find bolt-on acquisitions quite so easy to come by.
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