3i consortium makes £2.2bn bid approach for Anglian Water

AWG, the owner of Anglian Water, is set to become the latest UK infrastructure company to fall into foreign hands after receiving a £2bn-plus bid approach from a consortium led by 3i but funded largely by overseas pension funds.

The bid is understood to have been pitched at about 1,540p per share, valuing AWG at £2.18bn. Shares in the company closed 11 per cent higher at 1,512p, valuing AWG at £2.14bn. Shares in other water companies also rose strongly, with Pennon, the owner of South West Water, closing 6 per cent up, Northumbrian Water rising by 4 per cent and Kelda, which owns Yorkshire Water, gaining 3 per cent.

The foreign bidders in the 3i consortium include Canada Pension Plan, which has $99bn (£52bn) of assets under management and invests on behalf of 18 million Canadians, and Colonial First State, an Australian fund manager also with $99bn of assets under management. There is another overseas backer in the consortium.

AWG issued a brief statement confirming it had received a preliminary approach "which may or may not lead to an offer" but declined to identify the bidder or the price level. It added that there was no certainty a bid would be made.

The approach follows a rash of takeovers of big UK infrastructure companies this year. The ports and ferries operator P&O was bought by Dubai Ports World, AB Ports was acquired by a Goldman Sachs-led consortium and last month the airport operator BAA was taken over by a foreign consortium headed by the Spanish toll roads operator Ferrovial.

AWG is one of the smaller of the UK's remaining quoted water companies and has been seen as vulnerable to a bid for some time. 3i, along with other private equity investors, has become increasingly keen to buy regulated utility-style assets with predictable revenues. It was part of a consortium bidding for Thames Water, which has been put up for sale by its German owner RWE.

Robin Saunders, the former head of WestLB's principal finance unit, tried to buy AWG three and a half years ago, but her bid of 520p per share was rejected by the board, led by Peter Hickson. The company's value has more than tripled since.

Mr Hickson brought in a new chief executive, Jonson Cox, to head the business after ousting Chris Mellor, who presided over the disastrous purchase of the Scottish construction company Morrison and a highly contentious and expensive re-financing of the group which cost shareholders more than £100m.

Anglian was given the least-favourable settlement of any water company in the last review of price controls by Ofwat, only being allowed to raise its bills by £20 or 7 per cent over the 2005-2010 period compared with an industry-wide average of 18 per cent. Nevertheless, its shares have doubled since the regulator announced the new price controls in December, 2004, suggesting that the regulator was too lenient with the industry.

During the same five-year period, Anglian has been given permission to invest £1.5bn to maintain and upgrade its network. It has 2.6 million customers and has the least rainfall of any water company in the country.

The scramble to buy up water companies in the UK has left three bidders in the running for Thames: Guy Hands' Terra Firma, the Australian bank Macquarie and a joint bid from Qatar's state investment authority and the investment bank UBS.

Severn Trent is about to demerge its waste business, Biffa, which may make it a more attractive takeover proposition and Pennon, the second smallest quoted water group after Northumbrian, has attracted regular bid speculation.