Thames Water expands into America with pounds 575m agreed takeover of E'town

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The Independent Online
THAMES WATER rejected yesterday suggestions that it was overpaying in its haste to expand internationally after unveiling an agreed pounds 575m takeover of the fourth biggest publicly-owned water company in the US.

In what marks the second major move by a UK water company into the North American market, Thames is paying pounds 368m in cash and assuming pounds 207m in debt to acquire the New Jersey-based water company, E'town.

The $68-a-share offer represents a 31 per cent premium to E'town's closing share price last Friday and is the second biggest foreign takeover of a US water company after Lyonnais des Eaux' $2bn purchase of United Water.

Analysts fretted, however, that Thames may have overpaid and its shares fell by 35.5p or nearly 4 per cent to 884.5p. As a multiple of turnover, operating profits and earnings per share, the price paid by Thames is significantly higher than that paid earlier this year by Yorkshire Water, now renamed Kelda, for the Connecticut-based water company Aquarion.

Bill Alexander, chief executive of Thames, said, however, that the E'town deal offered strong growth potential in a market that is forecast to grow in size to $70bn a year within the next four years.

The takeover will lift Thames' gearing to over just over 100 per cent but Mr Alexander said the company still had the firepower to fund a similar sized deal without needing to tap shareholders for more finance through a rights issue.

A more likely strategy however will be to bolt on other smaller privately- owned water companies in the New Jersey area and bid for privatised municipal water contracts.

Analysts suggested that Thames' decision to announce a major US acquisition just three days before the UK water regulator, Ofwat, unveils its final set of price controls showed that Thames was comfortable with the 12 per cent cut in charges for next year proposed by Ian Byatt of Ofwat.

Thames has been actively looking for a US acquisition for the past year and began negotiations with E'town three months ago. The company supplies 234,000 customers and made operating profits last year of $51.6m on turnover of $145.5m.