Consortium offers £3bn cash for Kelda
23/11/2007
Kelda, the owner of Yorkshire Water, has received a £3 billion takeover approach from a consortium of infrastructure funds. The UK’s third-biggest water company confirmed the approach from Citigroup, GIC Special Investments and HSBC after its share price soared 13 per cent to £10.60.
Citigroup Infrastructure Investors and its partners are offering £11.65 cash per share. They are also proposing that shareholders retain any proposed first-half interim dividend.
The offer is understood to be a 28 per cent premium to the regulated asset value (RAV) of the company, a figure which analysts believe is intended to be a knockout bid. The sale of Southern Water last month was completed for a premium to RAV of about 30 per cent.
The consortium is understood to have been in talks with the company for some time and the deal could be finalised as soon as next week.
The bidders are believed to have been attracted by the calibre of Kelda’s management team, led by Kevin Whiteman, the chief executive, and they are likely to want to keep the existing management in place. Over the past three years, Yorkshire Water has remained in the top two of the performance league tables for water companies.
The company is the latest water concern to attract infrastructure funds, which are keen to hold long-term, stable, cash-generating assets. The investors are attracted by the industry’s low-risk nature, its steady cashflow and its generous dividend policies.
Royal Bank of Scotland sold Southern Water last month to a consortium led by Challenger Infrastructure Fund of Australia and JPMorgan Asset Management for £4.2 billion. Tiny South Staffordshire water was also sold for £400 million by Arcapita, the Bahrain-based investment group, to Alinda, an American infrastructure fund.
Last year, Anglian Water Group was sold for £2.25 billion to a consortium of infrastructure investors led by Colonial First State, the fund management arm of Commonwealth Bank of Australia.
The thirst for water assets by investors in infrastructure and pension funds appears to have been undiminished by the credit squeeze. Analysts had speculated that Kelda and Northumbrian Water were likely targets. Kelda had become attractive because it has one of the best efficiency ratings of all the water companies. It supplies about 1.3 billion litres of water daily to 4.7 million households and 140,000 businesses.
Kelda said an offer was not certain, but it has retained Greenhill and Merrill Lynch International as joint advisers. JPMorgan Cazenove is acting as corporate broker and is also providing financial advice to Kelda.
Elsewhere in the utilities sector, three final-round bids are understood to have been tabled for Norweb, the electricity distribution business that United Utilities put up for sale in June.United is expected to update the market on the progress of the £1.3 billion sale when it reports half-yearly results next week.
Colonial First State, the fund management arm of CBA, is working with JPMorgan’s infrastructure investment arm on a joint offer for the electricity business.
They are vying for the assets with Cheung Kong Infrastructure (CKI), controlled by Li Ka-shing, the tycoon based in Hong Kong. The third bidder is Arcapita, which owns Viridian, the Northern Ireland electricity business.
Philip Green, chief executive of United Utilities, put the electricity business up for sale this summer so that the company could concentrate on its water and sewerage business in the North West.