Severn Trent, the biggest of the three water firms that are still publicly traded, could be the next one to go private. It's rejected a preliminary bid from a consortium consisting of the Kuwait Investment Office (a sovereign wealth fund), Canadian pension fund Borealis, and Britain's Universities Superannuation Scheme. The shares jumped by 17% on news of the bid, understood to value the company at more than £5bn.
What the commentators said
"Another British utility's independence may be going down the gurgler," said Ian King in The Times. You can see why the bidders are keen. The world is "awash with liquidity", interest rates are at rock-bottom levels and long-term investors are hungry for yield. Water utilities offer "steady, regulated returns effectively linked to inflation".
The timing seems odd, however, according to analysts at Liberum Capital. The industry is about to embark on its five-yearly regulatory pricing review, which will determine the return water companies will be allowed to make on their investments between 2015 and 2020.
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Regulators, who have to balance investor returns with the squeeze on consumers' incomes, could well be tougher with the sector than during the current five-year period, due to alleged profiteering in recent years. This uncertainty makes the consortium's implied premium to the pre-bid share price look high.
The bigger issue here, said Alex Brummer in the Daily Mail, is the long-term consequences of foreign ownership of so many of our utilities. One problem is that shareholders' "ability to restrain ruthless management is non-existent" when the board is in a different country.
Nor can greater investment in our water infrastructure be taken for granted if "the owners live in a far-away desert and don't listen to what customers are saying", especially as their immediate priority is likely to be boosting their income. Aside from a one-off boost from the purchase price, what's in it for Britain?
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