The decision by Agbar, the French-Spanish owners of Bristol Water, in effect to put the utility up for sale has sparked hopes that a long-awaited round of deals will come to fruition.
Japan IT Week 2024 Brochure by 47Billion (English)
Ft.com print article
1. COMPANIES
Financial UTILITIES
Close
Hopes rise for end to water deal dry spell
By Alistair Gray
Published: June 12 2011 22:27 | Last updated: June 12 2011 23:22
Water company customers in drought-hit areas of England still hope for adequate rainfall, but bankers praying for
an end to the prolonged dealmaking dry spell in the sector have received a trickle of good news.
The decision by Agbar, the French-Spanish owners of Bristol Water, in effect to put the utility up for sale has
sparked hopes that a long-awaited round of deals will come to fruition.
A successful sale of Bristol can act as a “trigger” for other transactions, says Angelos Anastasiou, analyst at
Investec.
Fuelled by cheap debt, a host of international infrastructure and pension funds clamoured to buy England’s water
companies during the previous decade’s credit boom. Although funding may now be harder to come by, the main
reason for the interest of such investors in the industry – predictable cash flows that match their long-term
liabilities – remains intact.
Mergers and acquisitions bulls also point to recent acquisitions in the electricity sector.
PPL, the US power group, snapped up Eon’s UK business, Central Networks, for
£4bn earlier this year. Some analysts believe bidders who missed out are eyeing
some of England’s water companies.
Interested parties included Cheung Kong Infrastructure , the investment vehicle
of Hong Kong billionaire Li Ka-shing, which in July bought EDF’s UK distribution
business for £5.8bn, and MidAmerican Energy Holdings, owned by Warren
Buffett’s Berkshire Hathaway.
Also whetting the appetite of the City is the Potential Bristol buyer
possibility that policymakers and regulators are
preparing to relax stringent merger rules as part A possible takeover of Bristol
Water by Wessex Water would
of the industry’s biggest shake-up since seem an obvious combination,
privatisation in 1989. writes Alistair Gray.
Wessex is the region’s
At present, mooted mergers between existing stalwart, which provides
companies are automatically referred to the sewage services in Bristol’s
Competition Commission; there have only been patch. The two companies
a handful of such deals in recent years. have already formed a joint
venture so that customers in
the area receive a single bill for
When Macquarie won the hotly contested water and sewage.
auction for Thames Water in 2006, it sold its
Although declining to comment
stake in South East Water to overcome the on the Bristol situation, Colin
potential regulatory block to its bid. Skellett, Wessex executive
chairman, said: “We have an
The barriers have been set up mainly because owner who has plenty of
the industry regulator is keen to maximise the capacity to do other things ...
They have a large amount of
number of companies between which it can cash.”
compare performance.
Whether Wessex, which
Malaysian infrastructure group
In an interview with the Financial Times earlier YTL bought from bankrupt
this year, Regina Finn, chief executive of Ofwat, Enron in 2002, would win
said the barriers to mergers could be lifted were regulatory approval for an
the regional monopolies to agree to the acquisition of Bristol is far from!
introduction of competition. certain.
Agbar, owned by France-
Colin Skellett, executive chairman of Wessex based Suez Environnement
and La Caixa, the Catalan
Water, says: “If a water company comes up for
bank, paid £362m for Bristol
sale, it’s far more likely that it will be bought by five years ago – a premium of
an infrastructure investor or a foreign investor.” about 145 per cent regulated
He adds: “What benefits customers in the long asset value, according to
run is efficiency. There’s absolutely no doubt Lakis Athanasiou at Evolution.
that if you made some sensible combinations Last year, Bristol was the first
[between companies] you would get water company since the
efficiencies.” 1990s to appeal against
Ofwat’s latest pricing review.
The regulator had allowed
Much of England is dominated by the industry’s Bristol to increase bills by 7
stalwarts, which provide both water and sewage per cent over five years, but
services. But other areas have a mishmash of a the company claimed Ofwat