| By Andrew Callus
Reuters(2000년 11월25일)
[LONDON] German power utility RWE AG on Monday staked its claim to the global water industry big league with a 4.3 billion pounds (7.1 billion euros) agreed cash bid for Britain's Thames Water.
The 12.15 pounds per share purchase of Britain's largest water company creates the world's third-largest water and waste group behind France's Vivendi Environnement and Suez Lyonnaise des Eaux.
The German giant paid a 32.8 percent premium to Thames's closing price on Tuesday to combine its financial fire power with Thames's international water assets and expertise. Thames has 23 million water customers in the Americas, the Middle East and Asia. RWE has 11 million in Germany and Hungary, backed by a group market value of 20 billion euros that makes it one of Europe's "big six" utilities.
For RWE Chief Executive Dietmar Kuhnt, the combination provides critical mass to target a sector with huge growth potential. "These opportunities are driven by factors such as population growth, urbanisation and tougher environmental standards," Kuhnt told a news conference in London.
RWE expects global revenues for private sector water companies to grow to 430 billion euros by 2010 from 90 billion today, with U.S. operations and management (O&M) deals the driver.
Globally, water remains highly fragmented, but Vivendi, Suez, Thames and others are already exploiting consolidation opportunities in the United States and elsewhere.
THAMES MANAGEMENT TO STAY
The combined water operations are to be run out of London under Thames Water Chief Executive Bill Alexander. The partners hope to complete within 50 days after U.S. approvals.
"This is a growth story. It's not about cost-cutting," Alexander said. "We see a bright future for the new combined business which can take advantage of our strong international position and RWE's European presence."
Cash-rich but under pressure to find growth outside a very competitive German electricity market, RWE said it would finance 4.0 billion euros of the transaction from existing cash.The rest will come from a long term corporate bond issue. Debt rating agencies Moody's and S&P both affirmed RWE's credit ratings after the announcement.
RWE will assume about 2.5 billion pounds in Thames debt including that taken on in Thames's as yet uncompleted U.S. water acquisition E'town. Total enterprise value of the transaction amounts to 11.2 billion euros.Thames shareholders will also get an interim dividend of 20 pence per share for the year to March 2001 and the scheduled final dividend of 32.7 pence for the year to March 2000.
REPAYS TWO YEARS OF THAMES UNDERPERFORMANCE
At a premium of 42.9 percent to Thames's average share price over the past month, the bid makes up for Thames' 40 percent underperformance of the broader UK market over the past two years under the shadow of heavy UK price regulation and a refusal by regulator Ofwat to allow intra-sector takeovers.
Thames shares, which soared last week on news it was in talks and closed a further 50 pence higher at 12.10 after RWE picked up 20 percent of its shares in the market on Monday.
But RWE dipped another 2.2 percent to 38.94 euros on concerns about the high price and the strategy, continuing last week's slide from an end-August high of 42.84 euros.
SUCCESS WHERE AZURIX FAILED?
"It's true water is globally fragmented, but it's not always easy to get the benefits of consolidation from it as Azurix found out," said a UK-based banker unconnected with the deal. "You're often up against local competitors with local costs of capital and less political risk."
U.S.-based Azurix was spun off last year as a water consolidator from its power parent Enron at $19 a share, but after failing to capitalise on its investments its shares now stand at just $4-1/2 each.
WATER TO BE 21 PERCENT OF COMBINED PROFITS
The combined RWE-Thames group will derive just five percent of sales but 21 percent of profits from water. Along with electricity, gas and waste, water will become a core businesses.
Kuhnt said he remained committed to the disposal of underperforming non-core operations, including petroleum refining and retailing business Dea.
An industry source said at the weekend that Britain's BP was in preliminary talks to buy Dea. Kuhnt declined comment on specifics, but said no deals would be struck before 2002, when new legislation will allow German companies to avoid paying capital gains tax on disposals. RWE was advised by bankers at Merrill Lynch. Thames was advised by Lazard and Cazenove.
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