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CPP makes a billion-dollar water bet

A consortium that includes the Canada Pension Plan Investment Board offered about $4.1-billion (U.S.) on Monday to buy one of the largest U.K. water companies, marking the fund's biggest infrastructure investment ever.

The pension plan's investment arm will contribute about $1.05-billion (Canadian) to the bid for AWG PLC, the parent company of Anglian Water, which serves six-million customers in eastern England and covers the largest geographical area of any water company in Britain.

AWG recommended shareholders accept the bid, though it said other bidders have approached the company.

The deal would be the fund's largest infrastructure investment ever and adds to its growing portfolio of infrastructure assets. In June, the CPP Investment Board announced a $350-million (U.S.) investment in Transelec Chile S.A., the largest electricity transmission company in Chile.

“The bid supports our overall infrastructure investments strategy,” said the CPPIB's senior vice president of private investments, Mark Wiseman. “As long-term investors we look for solid infrastructure assets, like AWG, that have stable cash flows, strong operational performance and an experienced management team.”

Water appears to be a popular bet. Returns on water companies have outpaced oil in the past two years, according to Bloomberg. Monday's AWG bid came on the same day that Australia's Hastings Funds Management Ltd. agreed to buy South East Water Ltd., the U.K.'s No. 2 water-only utility, for $1.2-billion.

The other members of the consortium, which is investing through a new firm called Osprey Acquisitions Ltd., are Australian private equity groups Colonial First State Global Asset Management and 3i Group PLC along with Industry Funds Management, an Australian investment management group.

AWG chairman Peter Hickson said the board is unanimously recommending the offer, which “represents an attractive opportunity for shareholders to crystallize value.”

The company's shares surged almost 5 per cent after the announcement. AWG said it would recommend that its shareholders approve the offer, even if approaches from other third parties, which it didn't name, become formal offers in the future.

The Canada Pension Plan Investment Board invests the funds not needed by the Canada Pension Plan to pay current benefits. As of June 30, the CPP fund was worth $98.6-billion (Canadian), including $5.7-billion in private equity and infrastructure investments.