Severn Trent Falls Most in 6 Years After Takeover Dumped
Severn Trent Plc (SVT) slumped the most in more than six years in London as Borealis Infrastructure Management Inc. and its Kuwaiti-British partners abandoned a 5.3 billion-pound ($8 billion) plan to take over the water utility.
Severn Trent fell 8.9 percent, the biggest drop since Oct. 9, 2006, on six times the average daily volume of the past three months. Bidders including Kuwait’s sovereign wealth fund said they decided against increasing their proposal after failing to get “meaningful engagement” from the U.K.’s second-largest publicly traded water company.
“For the management not to have grabbed this with both hands I found astonishing,” Lakis Athanasiou, a utilities analyst at Agency Partners LLP in London, said by phone after Severn Trent rejected two sweetened offers in the past month.
The collapse is unusual after foreign investors acquired Thames Water Utilities Ltd., Yorkshire Water Services Ltd. and Northumbrian Water Group Plc in recent years. U.K. water utilities’ steady income from regulated prices has spurred buyers from KKR & Co. of the U.S. and Australia’s Macquarie Group Ltd. to China’s Cheung Kong Infrastructure Holdings Ltd. (1038)
LongRiver Partners, combining Borealis, Kuwait Investment Office and the U.K.’s Universities Superannuation Scheme, said late yesterday it wouldn’t make a formal bid for Coventry-based Severn Trent or raise its prior approach of 2,200 pence a share. The water company said separately the price was still too low.
Severn Trent shares are down 15 percent in a week, closing 172 pence lower at 1,765 pence, below the 1,825 pence close on May 13, the day before the initial approach was announced.
“It is unlikely that there will be a competing bid for SVT in the near-term and as such the shares should trade back to their pre-bid price,” Edmund Reid, a U.K. utilities analyst at JPMorgan Chase & Co., said today in an e-mailed note.
Under local rules, bidders can’t return with a new approach for six months without conditions being met including the U.K. takeover panel determining a material change of circumstances or a third party announcing a firm intention to make an offer.
The proposal by the investors including Borealis, co-owner of the U.K.’s largest ports operator Associated British Ports, was complicated by regulator Ofwat’s plans to announce next year the prices water companies can charge from 2015 through 2020.
The regulator sets price controls for water and sewerage companies every five years to protect consumers from excessive prices while ensuring utilities have enough money to finance their operations. It last set price limits in November 2009.
“The review is going to be severe with a big drop in allowed returns,” Athanasiou said. “If I were a bidder and willing to pay this sort of premium, I’d wait until summer 2014, just after the draft determination” on regulated prices. He valued Severn Trent at 1,616 pence a share without the offer.
The utility, named after two of Britain’s biggest rivers, supplies drinking water to 7.7 million people and sewer services to 8.7 million in the Midlands and Wales. Seven of Britain’s 10 largest water companies are privately owned.
Borealis, the infrastructure unit of the Ontario Municipal Employees Retirement System, Canada’s sixth-biggest pension fund manager, said its final bid rejected June 7 was 34 percent above Severn Trent’s average closing price in the six months to May 13. The bidders first made an approach on May 14, rebuffed a day later. They returned with a fresh proposal on May 31.
“We have consistently made clear to the consortium our belief that Severn Trent has a value to our shareholders above the level it indicated it was willing to pay,” Severn Trent Chairman Andrew Duff said yesterday. “This difference in value has been at the heart of this process and the consortium has either not been able, or willing, to bridge that value gap.”
The Kuwait Investment Office and university co-partners in the Borealis-led group have declined to comment on the approach.
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