Northumbrian Water has received a proposed cash offer from Li Ka-shing, the Asian tycoon, who values the water utility at £2.4-billion ($3.8-billion U.S.) in what would be the largest takeover in Britain's water sector since the financial crisis.
Cheung Kong Infrastructure Holdings, the investment vehicle controlled by Mr. Ka-shing, already owns British infrastructure assets including interests in Northern Gas Networks, Seabank power station in Bristol, Cambridge Water, and has a 4.75 per cent stake in Southern Water.
It has undertaken to sell Cambridge Water before any mandatory offer is made to avoid referral to the competition commission and it is believed CKI has already identified a buyer for the business.
Northumbrian said under the terms of the proposal, its shareholders would remain entitled to receive a final dividend of 9.57 pence per share for the year to March 31, 2011, due to be paid in September, subject to approval at the company's annual general meeting.
Northumbrian said on Monday it had agreed to grant CKI a limited period to undertake due diligence.
The indicative cash bid values each share in the company at £4.65, a 21 per cent discount to the final closing price before Northumbrian said it was in talks with a potential buyer at the end of June.
Shares in Northumbrian, which ended its financial year with £2.3-billion of net debt, jumped nearly 5 per cent on Monday to £4.45.
The utility serves 2.6 million people in the north-east and also operates Essex & Suffolk Water alongside having interests in Scotland, Gibraltar and Ireland.
Lakis Athanasiou at Evolution Securities said the approach by CKI for Northumbrian could attract other buyers into the sector.
"The big question now is that are there other bidders out there who are drawn to other stocks in the sector," he said.
But in recent weeks, concerns have been raised by several MPs from the north-east of England about the future of Northumbrian's 3,000 staff.
CKI was part of a consortium that bought EDF's U.K. power networks for £5.8-billion a year ago and was among the parties interested in E.on's U.K. business, Central Networks, which was bought by U.S. power group PPL for £4-billion this year.
The bid comes soon after plans by Agbar, the Spanish water specialist, to sell a 70 per cent stake in Bristol Water.
The fund is being advised by Royal Bank of Canada and HSBC on its offer, while Deutsche Bank is advising Northumbrian Water.