Canada Pension Fund's Takeover Report Shows Infrastructure Appeal

The potential takeover of Northumbrian by its largest shareholder illustrates the lure of infrastructure to investors seeking long-term stable cashflows.

(February 1, 2010) — Shares of Northumbrian Water jumped 11% on Monday after a report that the Ontario Teachers’ Pension Plan could bid 1.7 billion pounds ($2.7 billion) for the British utility company, taking it private.

“The promise of infrastructure is that investors can get long-duration, low volatility, inflation-protected, low-correlated and attractive returns,” said Kevin Greene, the ex-CEO and chairman of pensions consultant Rogerscasey, to ai5000 in June.

The Ontario Teachers’ Pension Plan is already Northumbrian’s biggest shareholder with a 27% stake in the company, after having purchased most of it from France’s Suez in April 2005. The Canadian pension plan, which has more than C$87 billion in assets, has reportedly been in communication with banks and other funds about purchasing the rest of the water company and being partners in the deal.

Northumbrian, which supplies water to 4.4 million customers in the north-east and south-east of England, has said it expects to maintain its current policy of increasing dividends by 3% annually before inflation, according to Reuters. Its increased share price aided the rest of the sector — United Utilities rose 4%, Severn Trust increased 3.9%, and Pennon gained 5%.

The takeover report follows a positive review of water bills by British regulator Ofwat in November, when it relieved water companies by recommending an overall slash in bills of just less than 1% over the period to 2015. Water companies had expected bigger cuts. Since November, shares in Northumbrian have risen by more than a fifth.

This is a very attractive sector if you can get affordable debt, and clearly there will be people that are doing the math and discovering they can make better returns by taking them private,” said Stephen Tupper, a regulatory lawyer at Greenberg Traurig Maher, to Reuters. During the 1980s, British water companies were the last of many state assets to be privatized and today, Northumbrian is one of only three companies that remain listed, Reuters reported.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742