A consortium of companies captained by the Kuwait Investment Authority and massive Canadian pension fund Borealis has approached the Severn Trent water company with a £5bn buyout offer. The firm has confirmed that the approach has been made but has so far declined to give any further details.
So what is the likelihood of a buyout actually going ahead? Well, Severn Trent does not currently give the impression that a deal is on the verge of materialising. The firm said in a statement: ‘This approach is at a very early stage, no proposal has been made and there can be no certainty that an offer will be made or as t the terms of any such offer, should one be forthcoming.’
Shareholders are excited, however. News of the takeover approach caused the price of shares in the company to jump a massive 18%, giving it a market capitalisation of £5.1bn. As buyout share prices are almost always at a premium level, the actual deal will value the firm slightly higher – shares are currently about £21.59 apiece, and the buyout would pay around £23 a share.
So what’s next? Well under the regulations of the UK Takeover Panel, a formal bid for Severn Trent must now be made by 5pm on 11th June, or the deal cannot go ahead. A similar deal went off for Kelda Group (which owns Yorkshire Water) in 2007, for a similar price and with a similar number of customers, so it is thought that the buyout will be seen as a good deal, especially for shareholders.
Meanwhile, elsewhere in the energy sector, the chairman of British Gas Roger Carr has told his annual general meeting attendees that his company is not an ‘evil empire’ forcing customers to choose between ‘heating and eating’. The firm is about to make full-year profits of around £600m thanks in part to an 18% rise in UK gas usage for the first four months of 2013 compared with last year.
Whilst such hefty profits may raise an eyebrow or two (we’re euphemising), Carr said: ‘Are we the evil empire? We are an extremely responsible and thoughtful company. We are a good business doing good things for this country.’ In a slightly more Victorian undertaker-sounding tone though, he added: ‘We are not a welfare operation, we have to make money. We are a business, that’s what you invest in us for.
‘We try to do the right thing for all our stakeholders and the vulnerable are right at the top of the list.’ Of course, he is referring to the estimated 7,200 people who died in the UK last year because they could not afford to have the heating on. In the same breath, he pointed out the British Gas is the ‘cheapest energy provider in Europe’. Still doesn’t stop the rising bills from hurting though, does it?