Severn Trent (SVT) has rejected an initial offer for its shares following a meeting with the consortium including a Kuwaiti sovereign wealth fund and Canadian pension fund as it "completely fails" to recognise the value of the water utility.
The deal only serves to highlight once more the attractiveness to overseas investors of UK utility companies, with their inflation-linked revenue streams and record low costs of debt on large national infrastructure asset bases. Indeed, Pennon (PNN) and United Utilities (UU) shares moved up around 4 and 3 per cent respectively following the announcement. A multinational consortium made up of the Kuwait Investment Authority, Borealis Infrastructure Management - the investment arm of Ontario Municipal Employees Retirement System (OMERS) in Canada - and the UK Universities Superannuation Scheme confirmed they had approached Severn Trent. Under UK Takeover Panel rules, the consortium has a deadline of 5pm on 11 June to make a firm bid for Severn Trent.
Severn Trent rebuffed the initial offer tabled by the consortium which it said was only at a 'modest premium' to the share price prior to the approach and 'completely fails to recognise the existing and potential value of Severn Trent'. Liberum analyst Peter Atherton said: "For a potential bid to be made in year three of the five-year regulatory cycle is surprising, and the bidder will be taking on considerable regulatory risk...at this point in the cycle." There is a risk that regulator Ofwat could take a more aggressive stance on rates and, therefore, allowed returns from April 2015.
