Ontario Teachers' Pension Plan is eyeing a larger stake in an English water utility that first caught its eye five years ago.
The pension fund is said to be preparing a $2.7-billion bid for the three-quarters of Northumbrian Water Group PLC it does not already own. Reports indicate Teachers has also approached other funds to participate.
Neither side would comment, although the FTSE-listed company is expected to issue a statement today to update the market on its trading. It could also ask that Claude Lamoureux – a former Teachers chief executive officer who is on the utility's board – remove himself from any discussions between the two sides.
Northumbrian supplies water and waster water services in England, providing sewerage services to 2.6 million people in England's northeast and water to 1.7 million in the southeast. In its last six-month reporting period, the company posted a $148-million profit.
Teachers first became interested in Northumbrian in 2005, when it paid about $616-million for a 25-per-cent stake, paying a 2-per-cent premium at the time. The fund said it was interested in “long-term investments in the water sector” and said it was “particularly attracted by the company's focus on its regulated utility activities.”
Analysts have predicted a flood of deals in the U.K. water market this year, given recent regulatory changes that saw new price structures implemented despite concern it would wreak havoc with profits at the country's four publicly listed water companies.
Under the new rules the company's price increases are tied to inflation. Coupled with higher costs of borrowing, some analysts expected dividend cuts of as much as 40 per cent across the sector. Two – United Utilities and Severn Trent – reduced their dividends. Northumbrian, however, said it would continue to increase its payouts.
Teachers has been busy in England in recent months. In January, it bought Acorn Care and Education Ltd.. In December, it raised its stake in Bristol International Airport.
