Severn Trent to buy Dee Valley for £78.5m

Severn Trent has agreed to buy smaller listed water service provider Dee Valley Group for about £78.5m, gazumping a rival that had previously shaken hands on a deal.

Ancala Fornia, an infrastructure investment manager, had agreed to buy Dee Valley for about £71.3m in October, but Severn Trent said that the “Dee Valley board had withdrawn its recommendation” of the acquisition.

The acquisition, which is expected to be earnings enhancing for the group, expands subsidiary Severn Trent Water’s offering in the area around Wrexham in Wales and south of Liverpool in England.

Under the deal, shareholders in Dee Valley, which is listed on the FTSE Fledgling index, will receive 1,705p in cash per share and a comparable cash offer for non-voting shares at 1,601p each, with the entire issued ordinary share capital of Dee Valley coming to £78.5m.

Severn Trent will maintain a separate Welsh licence for Dee Valley and, subject to regulatory approval, for the whole of its business in Wales to be regulated under Welsh government policy.

It also intends expand its current service offering to support vulnerable customers as Dee Valley's customers will have a share in half of any wholesale cost efficiencies which will be reflected in future bills.

Over £3bn will be invested in AMP6, an asset management programme for water companies to improve efficiency and wastewater quality, and the company said it will support continued investment in infrastructure in the Dee Valley region.

The acquisition is expected to deliver attractive returns as the company will apply its operating model, economies of scale and lower cost financing for operations.

Liv Garfield, chief executive of Severn Trent, said the purchase of Dee Valley "represents an opportunity for Severn Trent to apply its successful operating model for the benefit of customers across an enlarged asset base, in a neighbouring geographic area.

“We intend to bring real benefits to Dee Valley's operations and customers by bringing best practice and investment to support and enhance the service the company provides and by sharing the savings we can generate."