RWE buys biggest US water group
Utilities
The biggest water company in the US, American Water Works, took President George Bush's exhortation to get back to business to heart yesterday, announcing that it had agreed to be swallowed up by the giant German utility RWE in a deal worth $7.6bn (£5.2bn).
Braving the uncertain US equity markets, which opened yesterday for the first time since last Tuesday's terrorist attacks, RWE said it had agreed to pay $46 a share for American Water Works, a 36.5 per cent premium to its average closing price in the preceding month.
RWE, which acquired Thames Water last year for £4.3bn, is paying $4.6bn for American Water Works' equity and assuming a further $3bn of debt. RWE will also pay out a further $1bn for two US acquisitions that American Water Works has announced but not yet completed.
Bill Alexander, the chief executive of Thames who is in charge of RWE's water interests in the US, said the terms of the takeover had been agreed before last week's terrorist outrages but the deal was not signed until Sunday night.
He said that RWE's assessment of the value of American Water Works had not been affected by the possibility of a sharp fall on Wall Street tipping the US economy into recession.
"This is a strong business, well diversified across the US, and it is not going to be affected very much by market or consumer sentiment," Mr Alexander added.
The deal will transform RWE into the biggest water supplier in the US, with 14 million customers, and the third biggest in the world with 56 million customers. Only the two French groups, Vivendi Environmental and Ondeo, the merged Suez-Lyonnais des Eaux utilities, will be bigger.
American Water Works, headquartered in New Jersey, has 10 million customers, 5,000 staff and supplies water and waste water services to 1,400 communities in 23 states. Its annual revenues are $1.4bn.
In the last few years it has built itself into the largest publicly quoted water company in the US by acquiring 55 smaller suppliers. In addition, the company has also agreed to buy Citizens Water Resources and Azurix North America for $977m – two deals which will increase its US customer base to 13 million. RWE already had 1 million US customers through its ownership of E'town, the New Jersey water supplier bought by Thames last year.
Shareholders owning 24 per cent of American Water Works have given binding undertakings to accept RWE's offer. However, regulatory approval of the deal is expected to take 18-24 months. Approval is needed from utility regulators in many of the states in which American Water Works operates.
RWE shares fell yesterday by 4 per cent on fears that it was overpaying for American Water Works. However, Klaus Sturany, RWE's chief financial officer, maintained that the price was acceptable compared with other deals in the US water industry.
RWE is paying 12 times American Water Work's earnings before interest, tax, depreciation and amortisation. It will finance the deal through a corporate bond issue.
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