British water firm Severn Trent has rejected an improved 5-billion-pound ($7.6 billion) bid proposal from a consortium led by a Kuwaiti sovereign wealth fund and two pension companies, saying the price fails to recognise its long-term potential.
Severn Trent said on Monday the consortium, called LongRiver, was prepared to offer 2,079.49 pence per share in cash, 16 percent above its share price before news of LongRiver's interest emerged and up from a previous proposal believed to be just under 20 pounds a share.
UBS analyst Stephen Hunt said the new proposal was short of his fair value estimate for Severn Trent of at least 2,150 pence a share, but that a further increase could seal a deal. "I think that a third and final offer that is accepted is certainly not off the cards," he said.
LongRiver includes the Kuwait Investment Office, Borealis Infrastructure - part of Canadian pension fund OMERS - and Britain's Universities Superannuation Scheme. It has until June 11 to make a final bid under a deadline set by Britain's Take-over Panel. Shares in Severn Trent, which has 7.7 million customers mainly in central and western England and Wales, were down 0.3 percent at 2,046 pence by 1510 GMT.
Britain's water and sewerage firms have long attracted interest from yield-hungry investors drawn by their stable cash flows and a favourable regulatory structure. Seven of the country's ten water companies are now in the hands of private investors, with Pennon Group, United Utilities and Severn Trent the remaining listed entities.
"The board unanimously believes that LongRiver's revised conditional proposal fails to value the attractions to Severn Trent's shareholders of Severn Trent's increasingly rare combination of yield, inflation-linked business model and potential," the water company said in a statement. LongRiver said it was "surprised and disappointed".
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