International funds eye up UK water firms

SHARES in United Utilities soared by as much as 18 per cent yesterday on rumours that it might be the subject of a takeover, but analysts said a bid was unlikely at the suggested price.

It is understood that several buyers are circling around the UK water company as a possible break-up target, including an international infrastructure consortium of the Ontario Teachers pension fund, Qatari and Abu Dhabi funds, who are thought to be considering a possible £6.1bn offer.

The China Investment Corporation, a sovereign wealth fund, and US private equity house Kohlberg Kravis Roberts are also understood to be interested.

However, analysts believe a takeover is unlikely as the touted price tag of around £6.1bn, equating to 900p a share, is too high.

“This is a 31 per cent premium to the previous closing price of 689p and a 28 per cent premium to the mean analyst target price of 700p,” said Tina Cook, analyst at Charles Stanley.

But regulated water companies in general could be the subject of increased M&A activity as infrastructure and pension funds look for opportunities in a low bond yield environment, say analysts.

Overseas investors have been attracted to these types of assets in the past due to their stable, and relatively low risk revenue streams. FTSE 100 companies Severn Trent and Pennon are thought to be more obvious targets for a takeover.

Guillaume Redgwell, equity analyst at Liberum Capital, said: “In the long run we see it as likely that the remaining pure play UK water companies could pass into private hands.”