Borealis Infrastructure Management Inc. and its partners in the LongRiver group will abandon a 5.3 billion-pound ($8.2 billion) offer for Severn Trent Plc (SVT) because the U.K. water utility declined to negotiate with the group.
“The Severn Trent board has shown no interest in discussing our pre-conditional offer with us,” Borealis Chief Executive Officer Michael Rolland said today in a statement. “In the absence of any such engagement, there will be no further proposal from the consortium.”
Severn Trent, the U.K.’s second-largest publicly traded water company, on June 7 rejected the group’s bid of 2,200 pence a share, its third takeover approach since May 14. The bidding group comprises the Canadian infrastructure investor Borealis, the Kuwait Investment Office and Britain’s Universities Superannuation Scheme.
Severn Trent fell 6 percent to 1,946 pence today in London, the most in almost a year, on eight times the average three-month daily volume. Under U.K. takeover rules, LongRiver has until tomorrow to announce a formal intention to bid.
“We see the potential takeover of SVT as very much in the balance,” Edmund Reid, a U.K. utilities analyst at JPMorgan Chase & Co., said today in an e-mailed note. “There seems to be growing acrimony between SVT’s board and the LongRiver consortium.”
If no agreement or extension can be made before the deadline, Reid expects Severn Trent’s share price to move toward the 1,800 pence it traded at before LongRiver’s first approach almost a month ago.
Severn Trent, named for two of Britain’s biggest rivers, is the latest U.K. utility to face potential foreign ownership after buyouts including Thames Water Utilities Ltd. and Yorkshire Water Services Ltd.
British water utilities, regulated by watchdog Ofwat through price controls, offer steady profit that have lured buyers including Macquarie Group Ltd. and KKR & Co. (KKR:US) Seven of the 10 largest U.K. water companies are privately owned.
LongRiver first made a takeover approach May 14, which Severn Trent rejected a day later. It returned with a higher offer on May 31 that it said valued Severn Trent, which supplies drinking water to 7.7 million people and sewer services to 8.7 million clients in the Midlands and Wales, at about 5.2 billion pounds.
The utility spurned as too low the bid it said valued the stock at 2,079.49 pence a share because stockholders wouldn’t receive a 45.51 pence dividend. The bidders said they were “surprised and disappointed” at the rejection. The dividend is included in the latest offer at 2,200 pence, 3.5 percent higher than the May 31 approach.
Borealis’sRolland urged Severn Trent’s board on June 7 to engage with the bidders, which he said was needed to make a formal offer. The group’s third takeover approach is 34 percent above Severn Trent’s average closing price for the six months to May 13, the group said.
Severn Trent said in its June 7 statement the approach failed to reflect its value. The company held “private conversations” with LongRiver and had 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,” Chairman Andrew Duff said.
Borealis Infrastructure co-owns the U.K.’s largest ports operator, Associated British Ports. It’s the infrastructure unit of Ontario Municipal Employees Retirement System, or Omers. Based in Toronto, Omers is Canada’s sixth-biggest pension-fund manager.
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