Thames in talks with 'foreign bidder'

Thames Water: target of a £4.1bn takeover bid

Thames Water has revealed it is in advanced talks with an unidentified buyer, prompting speculation that yet another UK utility will be sold abroad.

Shares in Thames Water rocketed to 1153p on Wednesday, up more than a quarter on the day, after the firm announced it had received an offer of £4.1bn, valuing shares at 1215p each.

While the company, which is to make a further statement within the week, has refused to name the bidder, City analysts believe a French or German firm is behind the bid.

Purchase by a foreign company would continue a trend which has seen three water firms and at least eight electricity distributors sold abroad.

German buyer

Speculation has so far centred on RWE, a German utilities giant which owns 22.5% of Berlin Water Works, and has previously expressed an interest in the UK water industry.

Running story: Who owns the UK water industry

2000: September, Thames announces bid talks

2000: August, Hyder bought by Western Power Distribution

1998: Enron buys Wessex Water for £1.36bn

1996: August, Scottish Power buys Southern Water for £1.6bn

1996: January, North West merges with Norweb to form United Utilities

1995: Lyonnaise des Eaux buys Northumbrian Water

"[RWE] has a well-known strategy that they want to build a pan-European water business," one utilities analyst told Reuters.

The agency claimed that an industry source had confirmed the buyer as RWE.

"An announcement is likely on Monday," the source said.

But Nigel Hawkins, analyst at Williams de Broe, urged Thames to consider the prospect of rival bids before settling for the current offer.

"Think carefully"

"Thames should think very carefully before giving a recommendation", Mr Hawkins said. "A lot depends on whether they think there is a realistic chance of competing bidders coming in".

Analysts see other potential bidders including RWE's German rival E.ON, Vivendi, the French conglomerate which has a water and waste management services subsidiary, and Suez Lyonnaise des Eaux, owner of Northumbrian Water.

RWE has declined to comment.

The announcement follows reports that Philip Fletcher, the UK's new water regulator, is more open to a restructuring in water company ownership.

Sector "set alight"

The Competition Commission has also ruled that price cuts imposed by Ofwat on two water firms last year were "too severe".

Simon Hawkins, European utilities analyst at UBS Warburg, said Thames' announcement was "very, very positive for the sector.

"It's about time something happened to get the sector set alight," he said. "It's cheap and we would expect to see some more of this."

Shares in other UK water shares rose on the news on Wednesday, with Severn Trent closing up 31p at 708p, Anglian Water 32p stronger at 560p, Pennon Group 30.5p higher at 630p, and Kelda Group gaining 21.5p to 371.5p.

Buying spree

Thames' statement follows the takeover of Hyder by US-based Western Power Distribution last month.

Five of the 10 UK water firms were taken over within a decade of being privatised in 1989, with Wessex bought by a US firm, and Northumbrian Water snapped up by Suez Lyonnaise des Eaux.

The buying spree was even more fierce among electricity firms, also privatised under the Conservative government.

By 1998 only one of 14 electricity distributors remained independent, with eight taken over by US companies.

Outward looking

Thames has itself been one of the UK's most outward looking water firms, opening offices in Johannesburg earlier this year, and buying US utility E'town for £575m last November.

The company claims more than 24 million domestic and commercial customers worldwide, of which 5 million are based in Asia.