Severn Trent rejects fresh bid from LongRiver consortium

Shareholders hold firm for a third time despite £5.3bn approach for water giant

Severn Trent, the water company which supplies 7.7 million people around the UK, last night rejected a third bid from a Canadian-led consortium, which valued it at £5.3bn.

LongRiver, an international consortium consisting of the Kuwait Investment Authority, Canadian fund Borealis and the British pension group Universities Superannuation Scheme, announced yesterday they were prepared to offer 2,200p a share, up from a 2,125p-a-share approach which Severn Trent rejected on Monday.

Shares in Severn Trent initially jumped 9 per cent yesterday, before ending the day 50p higher at 2,070p, up 2.5 per cent.

The consortium said it would make a firm offer only if it received the recommendation of the Severn Trent board, and pleaded for them to get in contact. “Without engagement there can be no offer from the consortium,” Michael Rolland, Borealis’ president and chief executive, said.

However the water group’s board last night said that after careful consideration it had unanimously decided that the latest offer failed to reflect the long-term value of Severn Trent.

The Takeover Panel has set a “put up or shut up” deadline of Tuesday for LongRiver to table a formal offer or walk away. The raised offer received support from a major shareholder in Severn Trent yesterday, who described the revised price as “a very fair out-turn”, and predicted that other notable investors would also be keen.

LongRiver’s previous bid, worth £5.1bn, had been dismissed by Severn Trent, which said it did not reflect its “increasingly rare combination of yield, inflation-linked business model and potential”.

If the latest offer is successful, United Utilities and Pennon would be left as the only listed water companies in the UK as Severn Trent would become the latest in a long line of water companies to be taken private.

A bone of contention between Severn Trent and LongRiver has been the difference between the “book value” of Severn Trent’s net debt at £4.3bn and what the consortium says is the utility’s “fair value” of its debt, £5.1bn, which is included when calculating the company’s regulated capital value.

Industry experts have noted that water assets have historically sold for less than a 30 per cent premium to their regulated capital value, and LongRiver said yesterday that its latest offer represented a 31 per cent premium in the former case and a 41 per cent premium in the latter.

Shares in Severn Trent have already risen nearly 11 per cent since news of the first approach was made public and the consortium yesterday noted that its latest offer is more than a third higher than the average trading price of Severn Trent’s shares in the six months before their original offer became known.

Severn Trent last month announced that its underlying profits had dipped 3.3 per cent to £266.3m in the 12 months to April, although it upped its full-year dividend by 8.2 per cent to 45.51p a share.

At the time the company’s chief executive, Tony Wray, refused to be drawn on the bid.