Veolia Environnement SA (VIE) sold a U.K. unit to a Morgan Stanley-backed venture for about 1.2 billion pounds ($1.9 billion) as the French water company cuts debt.
Veolia will retain 10 percent of the U.K. regulated-water business for at least five years, the Paris-based company said today in a statement. The purchase is a joint venture between Infracapital Partners, a fund managed by a unit of Prudential Plc (PRU), and Morgan Stanley (MS) Infrastructure Partners.
Veolia Chief Executive Officer Antoine Frerot plans to cut debt by 3 billion euros ($3.7 billion) by the end of next year to make the company more profitable. Frerot said last month he wants to focus on “promising” countries and will pursue asset sales in the U.S. and U.K.
“This first significant divestment shows that we are moving in the right direction regarding the implementation of our strategic plan,” Frerot said in a statement. “The transformation of Veolia is progressing at a good pace.”
The company rose 1.1 percent to 10.31 euros in Paris.
“Veolia not only needs to lower its costs and save money but also increase sales,” Bloomberg New Energy Finance water analyst Dimitra Christakou said from London. “They can only do this in the non-regulated markets.”
Veolia Water serves more than 3.5 million people in southern England. Its three regional companies have a combined annual revenue of 274 million pounds and employ about 1,250 people, according to the company’s website.
Frerot has shaken up management of Veolia this year and nominated new directors in a bid to bolster his position. His plans for asset sales and debt reduction depart from the strategy under predecessor Henri Proglio, still a director, who expanded Veolia’s operations to 77 countries.
The utility on May 4 reported a 12 percent slump in first- quarter earnings after a “difficult” economy hurt waste operations and profit from domestic water contracts. The European waste-collection business is in decline and margins on French water contracts are narrowing, Pierre-Francois Riolacci, Veolia’s vice president in charge of finance, said May 16.
Veolia is targeting a reduction in net debt to less than 12 billion euros from 15 billion euros by the end of 2013. It plans to sell 5 billion euros of assets this year and next, cut operating costs by 120 million euros in 2013 and narrow its geographic reach.
To contact the reporter on this story: Brian Swint in London at firstname.lastname@example.org