Offers are more reasonable than the water giant claims

 
Marion Dakers
SEVERN TRENT’S managers clearly enjoy being on the board of a London-listed company. There aren’t many other reasons to snub three takeover offers within days, and sometimes hours, of the bids being tabled.

LongRiver’s latest offer came with a 34 per cent premium to Severn Trent’s average closing price in the six months before the bid, or around a 27 per cent premium to the firm’s regulatory asset base, providing a planned final dividend is included.

Despite the Severn Trent board’s complaints to the contrary, this sweetener compares reasonably well to the 26 per cent premium accepted by Northumbrian Water investors when it was taken private in 2011, and the 20 per cent premium included in the 2006 sale of Thames Water to Macquarie.

However, the offer price comes in slightly below the level expected by some industry watchers. Goldman Sachs analysts have pencilled in a 30 per cent premium for any private equity bidders sizing up takeovers in the water industry.

Nevertheless, several investors have already made encouraging noises behind the scenes about LongRiver’s more recent offers even before Friday’s flurry of announcements.

And with Ofwat closely regulating the industry, the board would struggle to claim to be protecting Severn Trent’s 7m British water customers by batting away these offers.

As the 25th anniversary of the industry’s privatisation approaches, Severn Trent management should be carefully examining the benefits of going private themselves.

Marion Dakers is deputy news editor
marion.dakers@cityam.com