Anyone who has been following this story might have guessed it would come off the rails (burst a pipe?) at some point. A consortium of Kuwaiti and Canadian investors last month made a proposal to take over the water company, then ratcheted up its offer to £21.25 per share (a modest premium), and has now made a third offer at £22 a share, but the deal has been turned down. The would-be investors are pretty peeved: a Telegraph source said: ‘If the Severn Trent board does not engage with the consortium, no further proposal will be made.’
It’s big talk, but as this is the third attempt – the offer has risen from a £5bn valuation to a £5.3bn one – it is clear that the board does not feel the offer is good enough. It was already looking unlikely last month, when Severn Trent announced: ‘The board…has reviewed the proposal with its advisers and concluded that it completely fails to recognise the existing and potential value of Severn Trent.’ Looks like LongRiver (the investor group) will have to up its game if it wants a deal to take shape.
The firm’s chairman, Andrew Duff, made clear on Friday that he would not be messed around with lowball prices. He says: ‘We have held private conversations with LongRiver and made clear that we have no objections to fuller discussions in the event that LongRiver puts forward a proposal which properly reflects the long term value and future potential of Severn Trent.’ If any deal is to go ahead, LongRiver needs to make its final, firm offer by close-of-play tomorrow because of takeover regulations.
But despite Severn Trent’s tough talk, it looks like shareholders are keen for the sale to go ahead. The share price has fallen almost 6% since the rejection was announced, despite news of the original takeover approach pushing shares up a massive 18%. If a deal is not reached by the deadline, it will almost certainly cause a big plunge in the utility company’s share price – pretty much the opposite of what the board is trying to engineer here.
Meanwhile, Jonson Cox, the boss of water regulator Ofwat, has weighed in with some pretty feisty comments about the profits and tax declarations made by utilities companies. He claims that some are using shareholder loans as a way of reducing tax liability, and says that the practice is ‘morally questionable’ even though it ‘may be legal’. He even went as far as attacking a ‘banker-style’ corporate culture at large in the industry, which has rejected Ofwat concerns. He says: ‘If a veil hides practices that do not stand the test of public interest, then it is our duty to lift that veil. It is regrettable if directors have not done so already.’
It emerged this morning that Thames Water, the UK's largest water compaby, paid no corporation tax in the most recent tax year, despite receiving £5 million credit from the Treasury and generating revenues of £1.8 billion. It also chalked up £549 million in underlying pre-tax profits, thanks to hiking bills up by 6.7 per cent.
Anyway, a lot hinges on the next 24 hours for Severn Trent. If the deal falls through, it may suffer the double whammy of a plummeting share price and the news that its industry is the subject of a new tax investigation. Brings new meaning to the expression ‘wash out’.