UK – UK pension fund Universities Superannuation Scheme (USS) and Canada’s Ontario Municipal Employees Retirement System (OMERS) say they may now stop trying to take over UK water company Severn Trent, after the latest proposal was dismissed.
Severn Trent’s board rejected the pre-conditional possible offer from the LongRiver consortium, which includes USS, OMERS’s infrastructure arm Borealis and the Kuwait Investment Office.
On behalf of the consortium, Michael Rolland, president and chief executive at Borealis, said: “The Severn Trent board has shown no interest in discussing our pre-conditional offer with us.
“In the absence of any such engagement, there will be no further proposal from the consortium and no offer for Severn Trent shareholders to consider.”
However, Andrew Duff, chairman at Severn Trent, said: “We have held private conversations with LongRiver and made clear we have no objections to fuller discussions in the event that LongRiver puts forward a proposal that properly reflects the long-term value and future potential of Severn Trent.”
But the consortium said that since it submitted its proposal on 14 May, no member of the consortium or its advisers had met any Severn Trent director or the company’s advisers, despite repeated requests.
The latest proposal is to buy shares at 2,200p, assuming the 45.51p per share final dividend already announced in respect of the year ended 31 March 2013 is not paid to shareholders, the company said.
It said this proposal only represented a 3.5% increase on the consortium’s previous conditional proposal and a premium of just 20.5% to its share price the day before the announcement of LongRiver’s interest in bidding for the company.
The UK utility said this did not reflect the long-term value of the company, and referred to high current demand from investors for infrastructure assets at the moment.
“The inflation-linked nature of its business model provides shareholders with a highly attractive investment at a time of exceptionally low interest rates,” it said.
Severn Trent’s share price fell by 4.5% on Monday after the early-morning rejection of the proposal to trade at £19.57 around midday, but remained above the closing price of £18.25 just before LongRiver’s interest was confirmed.
In other news, the total deficit of UK defined benefit pension schemes in the Pension Protection Fund’s (PPF) universe shrank by 27.7% during the month of May, and the average funding ratio rose.
In its monthly update on the funding position of those schemes potentially eligible for entry to the fund, the PPF said the funding ratio increased to 85.9% from 81.5%.
The aggregate deficit of the 6,316 schemes in the PPF 7800 index is estimated to have decreased to £185.5bn (€217.3bn) at the end of May, from a deficit of £256.6bn at the end of April.
Meanwhile, total assets managed by the schemes amounted to £1.1trn compared with total liabilities of £1.3trn, it said.
Some 4,885 schemes were in deficit at the end of May compared with 1,431 in surplus, according to the PPF.
Lastly, spending on state pensions will be capped for three years if the UK’s Labour Party wins the next general election, according to current proposals.
Asked in a BBC television interview on Sunday if pension spending would be included in the party’s proposed three-year cap on welfare spending, shadow chancellor Ed Balls said: “That’s our plan.”
The current chancellor George Osborne is to announce his cap in two weeks’ time, he said.
“I don’t know whether he will exclude or include pensioners spending,” Balls said. “At the moment, our plan is to include it.
“The majority of welfare spending is, in fact, going to people over 60 – that’s the truth – and we should look across the piece.”
Labour has said it will need to be very disciplined on spending if it returns to government and would aim to cap spending on “structural benefits”.
These are defined as welfare payments that do not depend directly on changes in the economic cycle, such as incapacity benefit and housing benefit.