British water utility Severn Trent has rejected a sweetened takeover offer from a group of international investors, saying the offer undervalues the company.
The bidding group, LongRiver, comprising the Kuwait Investment Office, Borealis Infrastructure Management and Britain's Universities Superannuation Scheme, offered £5.2bn ($7.8bn/€6.1bn) for the UK's second-largest water company. The sweetened offer was after the company rejected an earlier bid worth about £4.96bn from the consortium.
Severn noted that the revised proposal "fails to reflect the significant long term value of Severn Trent," and it reflects only a 16% premium to the share price prior to takeover news.
The company that serves about 7.7 million people in the Midlands and Wales has earlier reported a 37% increase in full-year profits. On the back of strong results, the company increased its annual dividend by 8.2% to 75.85 pence.
Severn said that the revised offer was worth £21.25 per share, excluding the announced final dividend of 45.51 pence. According to the company, the sweetened offer values the company at £20.79 per share, assuming that the dividend will not be paid.
"The board unanimously believes that LongRiver's revised conditional proposal... fails to value the attractions to Severn Trent's shareholders of Severn Trent's increasingly rare combination of yield, inflation-linked business model and potential," Chairman Andrew Duff said in a statement.
"LongRiver is surprised and disappointed at the reaction of the Severn Trent board," said Michael Rolland, CEO at Borealis.
"Our revised proposal is highly deliverable, appropriately financed and would offer certain and compelling value to Severn Trent's shareholders, recognizing its higher cost of debt and long-term prospects."
According to Borealis, the offer represents a premium of 29% to the average closing price of a Severn Trent share for the six months prior to May 13.
On Monday, Severn Trent closed at £20.25, down 0.34%, on London Stock Exchange.
The bidding group has until 11 June to announce a formal intention to make a bid, but some analysts say that a higher bid is unlikely.