Severn Trent rejects Kuwaiti group’s sweetened proposal

Severn Trent, the UK’s second-largest publicly traded water company, again rejected an increased takeover offer from a group including a Canadian infrastructure investor and Kuwait sovereign wealth fund.

The LongRiver Partners, comprising the Kuwait Investment Office, Borealis Infrastructure Management and Britain’s Universities Superannuation Scheme, offered 2,200 pence a share, or £5.3bn ($8.24bn), according to a statement on Friday. The group’s third takeover approach since May 14 is 34% above Severn Trent’s average closing price for the six months to May 13, it said.

Severn Trent, named for two of Britain’s biggest rivers, is the latest UK utility to face potential foreign ownership after buyouts including Thames Water Utilities and Yorkshire Water Services British water utilities, regulated by Ofwat through price controls, offer steady gains that have lured buyers including Macquarie Group, KKR & Co and Cheung Kong Infrastructure Holdings.

Severn Trent said in a statement late on Friday that the offer represents an increase of only 3.5% from the previous proposal, and a premium of only 20.5% to the company’s share price the day before LongRiver announced its interest.

“The board, having consulted its financial advisers, has unanimously concluded that the proposal continues to fail to reflect the significant long-term value of Severn Trent or to recognise its future potential,” according to the statement.

Severn Trent jumped as much as 8.9% to a record before paring gains to close 2.5% higher at 2,070 pence in London on Friday. The stock has advanced almost 32% this year. The yield on Severn Trent debt due in 2026 rose to the highest for the day at 3.59%.

“LongRiver’s proposal of 2,200 pence per share in cash represents certain and compelling value for Severn Trent shareholders,” Michael Rolland, chief executive officer at Borealis, said in its statement. “We look forward to engaging with the Severn Trent board to enable us to make our formal offer to Severn Trent shareholders. Without engagement, there can be no offer from the consortium,” he said.

The bidding group first made a takeover approach more than three weeks ago that Coventry-based Severn Trent rejected a day later. It returned with a higher offer on May 31 that it said valued Severn Trent at about £5.2bn.

The utility spurned the approach that it said valued the stock at 2,079.49 pence a share because stockholders wouldn’t receive a 45.51 pence dividend, leading the bidders to say they were “surprised and disappointed” at the rejection. The dividend is included in the latest offer at 2,200 pence, 3.5% higher than the May 31 approach.

The pre-conditional cash offer values Severn Trent at about £5.3bn, according to LongRiver.