RBS Sells Southern Water for £4.2bn

A consortium led by Australia’s Challenger Infrastructure Fund and JPMorgan Asset Management of the US yesterday won the battle for Southern Water with a knock-out £4.2bn ($8.5bn) bid for the UK water and sewerage group.

The consortium, which will buy Southern Water from Royal Bank of Scotland, competed against bidders that included Goldman Sachs, the investment bank, in the final stages.

A person close to the deal said that the auction had gone ”down to the wire”, and that the winning bid was close to the next highest offer.

The sale comes nearly a year to the day after a consortium led by an infrastructure fund run by Macquarie, the Australian investment bank, won the auction for Thames Water, the UK’s biggest water company, with an £8bn bid.

UK water assets have attracted high valuations from infrastructure bidders, including pension funds, because they offer stable long-term returns that can match the funds’ liabilities.

CIF said it would invest £300m of equity for a 27 per cent stake in Southern Water, while a fund advised by JPMorgan Asset Management Infrastructure would take a 32 per cent stake.

The consortium includes seven Australasian superannuation funds who are to take a combined 18 per cent stake and are advised by Access Capital. Also in the group is UBS, with 18 per cent, and Hermes, with 4 per cent.

Steve Bickerton, CIF chief executive, said Southern Water was a significant investment and a highquality regulated cash flow asset with good growth opportunities. ”Southern Water complements the existing portfolio’s core assets, which each provide a combination of highly predictable cash flows and avenues for growth.”

Southern Water is one of the UK’s most rapidly growing water and sewer companies with approximately 100 water treatment works and 370 sewage treatment works.

It supplies water to more than 2.3m people and provides waste water services to about 4.3m people.

RBS this year decided to auction Southern Water after having worked with Vivendi Environnement of France to acquire the company from Scottish Power in 2003.

RBS owns about 49 per cent of Southern Water’s shares but controls nearly 94 per cent of its economic interest under an unusual ownership structure. Perry Capital and DE Shaw, the US hedge funds, are among the other large shareholders.

After the deal is completed, Southern Water will represent 36 per cent of CIF’s portfolio.

The £4.2bn price tag includes debt and represents a multiple of earnings before interest, tax, depreciation and amortisation of 9.2 times and a regulatory capital value multiple of 1.27 times for the current year.

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