Macquarie wins £8bn auction for Thames

By Lina Saigol and Rebecca Bream

Published: October 17 2006 03:00 | Last updated: October 17 2006 03:00

Macquarie, the Australian bank, last night won the hotly contested auction for Thames Water, the UK 's biggest water company, which is being sold by RWE, the German utility group, in a deal valued at £8bn.

Macquarie's European infrastructure fund is leading aconsortium called Kemble Water, which bid the highest price for Thames .

It beat three other serious bidders in the auction, including Qatar Investment Authority, which had teamed up with UBS's global infrastructure fund.

The Thames deal, which includes £3.2bn of debt, is subject to approval by RWE's supervisory board at a weekend meeting. If approved, the sale is due to close by early December.

The deal marks the biggest buy-out in the UK this year.

Terra Firma, the private equity group headed by Guy Hands, had also bid for the asset, as had Alinta, the Australian energy group. Alinta was planning to launch a A$5bn (£2bn) share issue to fund the deal if it had won.

Final fully financed bids were submitted for Thames on Saturday. The deal comes days after Macquarie sold its stake in South East Water to funds linked to Westpac, a rival Australian banking group, to remove a potential regulatory barrier to its bid for Thames .

RWE had been running a dual-track process on Thames to assess whether it should sell the company or float it.

Goldman Sachs had been appointed to carry out the sale, while Deutsche Bank had been handling a potential initial public offering.

RWE bought Thames, which has more than 13m customers across London and the south-east of England , for £4.3bn in 2000. The German utility is understood to have booked a profit of about €500m on the sale of the business. RWE, which is headed by Harry Roels, admitted that its foray into water had not been a success.

The German utility said this year that it was selling Thames to concentrate on the higher-growth energy business. The company has repeatedly failed to meet targets set by Ofwat, the water regulator, on leakage.

In July Ofwat ordered Thames to pay an extra £150m to replace old water mains.

RWE is also selling American Water, its US business, through an IPO scheduled for next year.

UK water assets have been attracting high valuations from infrastructure bidders, including pension funds, because they offer stable returns that can match the funds' liabilities.

Stocks in these companies have risen sharply on the back of takeover speculation.

AWG, which owns Anglian Water, is also in play, having received a £2.2bn bid from Osprey, a consortium comprising Australian and Canadian infrastructure and pension funds.

The losing bidders for Thames may turn their sights on AWG. However, Osprey has already increased its offer for the water group in an attempt to seal off any possible counterbid.