Bottom Line: Expensive but far from £19m down the drain

Marc Sidwell
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SHAREHOLDERS in Severn Trent may be mourning the sky-high prices of May and early June, but it is too soon to claim the City didn’t earn its fees in helping the water firm resist the advances of the LongRiver consortium.

It was revealed yesterday that in batting away the takeover bid Severn Trent paid £19m in advisory fees. The firms involved included Citi and Rothschild. That amounts to 8.83 per cent of the utility’s group profit before tax for 2012-13, no small sum.

The immediate upward journey of the shares on news of the bid in May was unmistakable: they jumped more than 16 per cent overnight, closing at 1,825p on 13 May and opening at 2,125p on 14 May. That fell away in June, when the bid was finally rejected. Shares closed at 2,070p on 7 June, before falling steadily for the next fortnight, bottoming out on 21 June with a close at 1,614p, a fall of 22 per cent.

Since then, the share price has recovered somewhat, but remains below pre-bid levels.

That explains the long faces from short-term investors who failed to get out while the going was good. Yet the bid was rejected for not representing fair value. As such, for anyone investing in the company over a longer time horizon this still has time to prove £19m well-spent. Given how often the City is tarred with the short-termist brush, it seems a little unfair to beat its advisers up when they play the long game as well.