RWE’s £4bn buys Thames Water

GERMAN utility group RWE yesterday unveiled the details of its friendly £4.3 billion cash offer for Thames Water, and said it had already acquired a 20 per cent stake in the company.

The deal makes RWE the third biggest water company in the world by number of customers, after Vivendi and Suez Lyonnais.

While there are few operational synergies, the companies presented the deal as a complementary mixture of Thames’ technical strengths and RWE's financial muscle.

The offer, which is being backed by Thames’ Board, of 12.15 per share is a 33 per cent premium to Thames’ closing price on 19 September. This was the day before the company said it was in talks that could lead to a takeover.

"This is very much a confirmation of what has been widely rumoured," said Thames chairman Roger Carr.

Apart from 12.15 per share cash, Thames shareholders on the register on 6 October will receive an interim dividend of 20p, and a final dividend of 32.7p per share in April.

Thames B shareholders will be offered 79p share.

After net debt is added, the enterprise value of the acquisition for RWE is 11.2 billion euros (6.8 billion). RWE said it would finance most of the acquisition from existing cash resources, and issue a long-term corporate bond for the remainder.

Thames Water chief executive Bill Alexander said customer bills would still be sent out by Thames Water, and there would be virtually no difference to the services provided.

Mr Alexander will remain chief executive of the new company, which will operate as a self-contained unit within RWE. Apart from the loss of the non-executive board, no staff changes are expected. Thames will continue to operate from its London headquarters. RWE, which employs about 150,000 people worldwide and is valued at about 20 billion euros on the Frankfurt Stock Exchange. The company is the third biggest electricity provider in Europe.

In the year to 31 March, Thames reported a pre-tax profit of 420 million on a turnover of 1.5 billion. About 90 per cent of its revenue came from the UK.

Thames ’ main activity is providing water and sewage services to 12 million customers predominantly in the south-east of England.

Last year its services division began a 30- year contract for five wastewater treatment works in Edinburgh.

In November, Thames spent $948 million (653 million) acquiring E’town of New Jersey. Yesterday it said it had acquired 42 per cent of Chile’s second largest water company, ESSBIO, for $280 million. Thames said this year it was aiming for 30 per cent of its pre-tax profit to come from outside the UK by 2005.

Thames shares closed up 50p, or 4.3 per cent, at 1210p. RWE bought its 20 per cent stake on the open market, at a cost of over 800 million.

Merrill Lynch advised RWE, while Lazard advised Thames Water.

Rebecca Reehal, analyst at Lehman Brothers, said: "It’s a very good deal for Thames shareholders, and it gives the company the financial flexibility to do more."