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Alinta enters 7bn battle for Thames Water

By Lina Saigol, European M&A Correspondent
Financial Times

Sept. 22, 2006

Alinta, the Australian energy group, has joined the 7bn bid battle for Thames Water, the UK's largest water group, in what is set to be one of the biggest infrastructure deals in Europe this year.

If the Australian group's bid is successful, it will launch a A$4bn (1.6bn) share issue, underwritten by JPMorgan, the US bank, to fund the deal. That would mark Australia's biggest ever capital raising by a single company to date.

Alinta is competing with three other bidders to buy Thames, all of which are currently in the data room doing due diligence ahead of the second-round bids due in mid-October.

They include the Qatar Investment Office, the government's state-owned investment fund, which has teamed up with UBS's Global Infrastructure fund to bid for the asset.

Terra Firma, the private equity group headed by Guy Hands, is also in the auction. It has recruited John Roberts, former chief executive of United Utilities, to work on the bid.

Macquarie, Australia's largest bank, is the fourth bidder. It has formed a consortium which, among others, includes Canada's Alberta Pension Fund and the Dutch pension fund ABP.

RWE, the German power group that owns Thames Water, has put the company up for sale so it can concentrate on its energy interests.

It has appointed Deutsche Bank and Goldman Sachs to explore options, running an auction in tandem with a possible demerger and flotation on the London Stock Exchange.

However, Thames has been dogged by problems with Ofwat, the industry watchdog, which has fined the group for failing to meet customer service performance standards. It has also missed leakage targets since 2000 and this year was ordered to spend an extra 50m replacing old water mains.

Alinta, Deutsche Bank and Goldman Sachs all declined to comment.

[UPDATE]

September 23, 2006

ALINTA, Western Australia's biggest natural gas utility, wouldn't comment on a report that it had joined a pound stg. 7 billion ($17.7 billion) battle for RWE's Thames Water unit.

"We don't comment on our business development opportunities," said Tony Robertson, a spokesman for the Perth company.

Alinta is competing against three other bidders to buy Britain's largest water company, the Financial Times said on its website.

Shareholders will vote next month on Alinta's planned $6.3 billion asset and debt swap with Australian Gas Light.

In August, chief executive officer Bob Browning said Alinta wanted to invest in water and other infrastructure assets in Australia, the US and Britain.

Thames Water "would be a sizeable investment, given the AGL deal hasn't gone through yet," said Aegis Equities Research analyst John Deniz. "This type of asset doesn't come up for sale very often so it may be a highly contested bid. And if it is, there's a prospect of the successful party overpaying."

Shares in Alinta fell 5c, or 0.4 per cent, to $11.19 on the Australian Stock Exchange, after earlier falling as low as $11.01.

The company said this week it was also considering a bid for Australian Pipeline Trust. The stock has risen 0.4 per cent this year compared with a 12 per cent gain for the benchmark energy index.

Should Alinta succeed in bidding for Thames Water, the company will raise $4 billion in a share sale underwritten by JPMorgan Chase to fund the purchase, the FT said.

Alinta says any acquisitions will be funded by assuming additional debt, and by the issue of shares for "substantial" transactions, it said.

"The vigour with which Alinta appears to be chasing assets could make some investors nervous," Merrill Lynch said in an August 16 report. "Shareholders would be right to ask whether Alinta has the management capacity to deliver any further acquisitions while concurrently executing their biggest deal."

Buying a water company would position Alinta well for the potential acquisition of water companies in Australia should they be privatised in five to 10 years' time, Mr Browning said in August.