In the takeover tussle for Dee Valley Water between Severn Trent and investment manager, Ancala Fornia, Severn Trent has dismissed “irrevocable” commitments stock to vote for Ancala’s bid from shareholders representing some 40% of Dee Valley’s as not requiring the shareholders to vote at all. And Ancala has dropped its minimum acceptance condition for its bid from 75% of shareholdings to a simple majority.
Meanwhile Dee Valley employee representatives has today come out against the Severn Trent offer and called for the Competition and Markets Authority (CMA) to intervene.
Ancala partner, Spence Clunie, said, in a statement: "The voting share offer is not subject to any regulatory terms or conditions and is capable of becoming or being announced unconditional as soon as the new, lower acceptance condition has been satisfied."
Ancala, has declared it will not respond to the water firm’s higher offer saying its bid was “final and will not be increased.” At 6 December it had acceptances of its offer representing just over 40% of Dee Valley’s voting shares. It is looking to pick up Dee Valley shares in the market at its 1,706p offer price.
Under takeover rules, Severn Trent has to win 75% of the votes – by value of the holdings of the voters attending shareholders’ meetings (scheduled for January) – to decide the outcome of the takeover bid. Nevertheless Severn Trent has suggested that the vote may yet go in its favour. The firm told THE WATER REPORT that the terms of the the irrevocable commitments “do not expressly require the relevant shareholder to vote at the Severn Trent meetings.”
Because of Severn Trent’s existing interest in the sector, its acquisition of Dee Valley would require CMA clearance. The competition regulator opened its first phase investigation into the latest bid on 29th November. There is a 27th January deadline for a phase one decision. Ancala, naturally, is eager to emphasise that it bid triggers no such regulatory hurdles.
Under mandatory terms, Severn Trent’s offer would lapse should the Competition and Markets Authority (CMA) take its statutory investigation into the takeover to the second phase before the extraordinary general meeting is convened to decide on Dee Valley’s fate.
A committee of Dee Valley workers' representatives – the Employee Forum – has posted a statement of its lack of support for Severn Trent's offer on the Dee Valley website. The committee's rejection was based largely on its assertion that that a Severn Trent takeover would threatened jobs. It summarised its view as: "We are against the Offer made by Severn Trent Water, and are so concerned that we have raised our objections to the CMA explicitly outlining the case for the [Severn Trent] offer to be referred to a stage 2 review by the CMA."
Severn Trent’’s 1825p a share offer on 25 November was recommended by the Dee Valley board at the end of November.
During the offer period following Severn Trent’s first bid Ancala bagged a 4.45% stake in Dee Valley from Chelverton Asset Management. This added to irrevocable undertakings to vote in favour of Ancala from AXA Investment Managers UK – with a 25.5% stake – Aviva Investors Global Services with a 9.6% holding and the chairman of Dee Valley, Jon Schofield with a minor share to give Ancala a near 40% grip on the voting shares in Dee Valley.
Severn Trent announced that it: "intends to maintain a separate Welsh licence for Dee Valley and, subject to regulatory approval, intends that the whole of Severn Trent’s business in Wales will be regulated under Welsh government policy." In a subsequent statement it said it "will be considering how best to manage the non-household retail business post acquisition." The company could be anticipating developments in the Wales Bill (see box) that could obstruct Wales-based businesses’ participation in the new water retail market.
Under existing rules, businesses in Wales that are customers of a water retailer with most of its operations in England, are eligible to participate in the competitive market.
Depending on the outcome for water retail competition under a Wales Act, Severn Trent’s proposal for its Welsh business customers could deny them access to the English business retail market when it opens in April 2017. And it would mean disappointment for any Dee Valley business customers anticipating being able to switch water supplier should the Severn Trent bid prove successful.
Businesses in the Dee Valley and Severn Trent areas consuming more than 50Ml a day will remain able to switch supplier irrespective of the outcome of the takeover bid.
Cost benefits arising from the deal during AMP6 will have to be shared with customers.