Severn Trent Soars 18% Following Bid Approach


LONDON -- The shares of Severn Trent soared 334 pence, or 18%, to 2,159 pence during early London trade this morning after the FTSE 100 member said it had received a bid approach.

Severn Trent, which supplies water to 4.2 million premises in the Midlands and Wales, said the approach was "at a very early stage" and confirmed "no proposal has been made and there can be no certainty that an offer will be made or as to the terms of any such offer, should one be forthcoming".

The FTSE 100 member revealed the approach came from a consortium made up of Borealis Infrastructure Management, the Kuwait Investment Office, and Universities Superannuation Scheme Limited.

Borealis acts as the infrastructure investment arm of the Ontario Municipal Employees Retirement System, which is one of Canada's largest pension funds, while Universities Superannuation Scheme manages the pensions of U.K. university employees. The Kuwait Investment Office represents the gulf state's sovereign investment fund.

According to Financial News, the specialist investment publication, the consortium could be willing to offer up to £23 a share for Severn Trent, which would value the blue chip at close to £5.5 billion.

A £23 per share offer would equate to a racy 25 times Severn Trent's earnings for the year to September 2012. The mooted bid price would also leave the trailing yield at 3%.

Fellow water suppliers were lifted by this morning's speculation, with Pennon up 6% to 702 pence and United Utilities up 4% to 769 pence.

Of course, whether the rumored £23 per offer, the possibility the approach will come to nothing and the general prospects for the water industry all combine to make Severn Trent a sell right now is something only you can decide.

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