Water Company Severn Trent Climbs on Borealis Bid Report

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Severn Trent Plc, Britain’s second-largest publicly traded water company, surged the most since May 2013 following a report of a 5 billion-pound ($7.9 billion) takeover bid by Canada’s Borealis Infrastructure Management Inc.

The shares swelled 5.9 percent to 2,176 pence by the close in London after The Sunday Times reported without citing anybody that Borealis was considering a bid. Severn Trent declined to comment Monday and Borealis spokeswoman Lori McLeod didn’t return calls and e-mails for comment.

Borealis and its investment partners made two offers to buy Severn Trent in 2013 that the Coventry-based utility rejected as too low. The second bid for Severn Trent, which supplies drinking water and wastewater services to about 7.7 million people across the Midlands and mid-Wales, was priced at 2,125 pence a share with a dividend.

Any current bid would have to surpass a 35 percent premium to the utility’s regulatory asset value, meaning it would have to be higher than Borealis’s 2013 offer, according to a note from Sanford C. Bernstein. With Severn Trent’s current market value including Monday’s gain at 5.16 billion pounds, the report of a 5 billion-pound bid represents no premium.

Ofwat, Britain’s water regulator, in December set the prices that utilities can charge for the five years through 2020. As that ended regulatory uncertainty, takeovers in the industry would likely be spurred, Michael McVeigh, director of corporate finance at Ernst & Young Global Ltd., said then.

United Utilities Group Plc, the country’s biggest water company by market value, gained 3.7 percent on Monday to 987 pence. Shares of Pennon Group Plc, the third-largest of the U.K.’s publicly traded water utilities, added 4 percent to 853.5 pence as markets closed higher across the U.K. and Europe.

In March, Toronto-based Borealis led a group of investors in the $7 billion takeover of Fortum Oyj’s Swedish electrical distribution network.

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