Macquarie Buys RWE's Thames Water:
Macquarie Bank Ltd., Australia's largest securities firm, led a group that agreed to buy RWE AG's Thames Water unit for 4.8 billion pounds ($8.9 billion), the third acquisition of a U.K. water utility this month. Macquarie Bank will acquire 11 percent of the U.K.'s largest water services company, with two funds managed by the Sydney-based bank and other unnamed investors holding the rest, Macquarie said in a statement today. RWE, Europe's third-largest utility, is selling Thames to focus on gas and power markets. Thames Water, which also attracted a bid from British financier Guy Hands, offers investors revenue from 13 million customers in an industry where returns have outpaced those of oil. Those gains persuaded three buyout firms to lead $26.5 billion of water industry takeovers in the U.K. this month. ``The regular cash flows these assets generate enable Macquarie to put them into funds that investors will support,'' said Rob Patterson, who manages the equivalent of $2.5 billion at Argo Investments Ltd. in Adelaide, including Macquarie stock. ``They've missed a couple of deals lately and it's good to see that they've got one, and this is a big one.'' Macquarie Bank, the world's largest private manager of infrastructure, has bundled more than $66 billion of assets into funds it oversees for investors, including the Indiana Toll Road in the U.S. The Thames Water purchase is part of a record $151 billion of takeovers announced in Australia this year. The Bloomberg World Water Index of 12 utilities has gained 39 percent in the past year, outpacing a 19 percent gain for the Morgan Stanley Capital International World Index and a 6.2 percent decline in oil futures in New York. European utility takeovers this year have jumped 22 percent in value to about $185 billion. RWE will book a gain of at least ``hundreds of millions'' of euros, the Essen, Germany-based company said in a statement. The sale of Thames Water, which has net debt of 3.2 billion pounds, is expected to be completed by the start of December. Including debt, the takeover will be the biggest by an Australian company. Macquarie said buyers of Thames Water include closely held Macquarie European Infrastructure Fund and Macquarie European Infrastructure Fund II, both managed by the bank, and which invest in transport, ports, ferries and utilities. The bank will pay 250 million pounds for its stake. T hames Water reported a 31 percent jump in net income to 246 million pounds in the year ended March 31, according to the company's financial statements. Sales rose 18 percent to 1.4 billion pounds, though Thames outlined challenges to earnings amid rising pension costs and one of the most severe droughts in the region since records began in 1897. Thames Water has missed targets for cutting leakage for three straight years. The company has said it plans to spend at least 3.1 billion pounds by 2010 to reduce leaks and sewer flooding and replace Victorian-era pipes around London. U.K. water prices have been regulated by the government since the utilities were privatized by Margaret Thatcher in 1989. The U.K. has set price limits for the period of 2005 to 2010 that allow water companies an average rate increase of 4.2 percent per year. Job cuts announced on Aug. 30 may reduce Thames Water's workforce by 25 percent by 2010 as the company aims to reduce costs. The company proposed a 1 billion-pound reservoir on Sept. 14 to help it supply London as population growth drives demand. Macquarie Bank agreed to sell its holding in South-East Water Ltd., the U.K.'s second-largest water-only utility, earlier this month. Melbourne-based Hastings Funds Management Ltd. agreed to buy South-East Water for 665 million pounds. Zi Group Plc and partners last week raised their offer for AWG Plc, the U.K. owner of Anglian Water, to 2.25 billion pounds to discourage rival bids. Macquarie Bank stock rose 55 cents, or 0.8 percent, to A$71.05 at the 4:10 p.m. close of trade in Sydney. The bank ranks first in Australia for advisory work on acquisitions this year, working on 57 transactions worth $42.2 billion, according to data compiled by Bloomberg. The bank, which failed in a 1.5 billion-pounds bid for London Stock Exchange Plc earlier this year, completed more than 260 transactions worth more than A$115 billion ($86.7 billion) in the 16 months ended July. RWE did well to get this much,'' said Andrew Moulder, senior utilities analyst at London-based Creditsights Inc. Now the question is what will it spend the money on. RWE, Germany's largest power producer, plans to invest the sale proceeds in natural-gas or power companies in central and eastern Europe as markets open to full competition next year. The sale of Thames Water is a significant step in the realization of our strategy to focus on our core business in the electricity and gas markets in Europe,'' RWE's Chief Executive Officer Harry Roels said in a separate statement. Macquarie Bank, Carlyle Group and Morgan Stanley are among buyout firms and investment banks trying to raise about $20 billion to invest in U.S. water companies, roads and airports, Chris Leslie, chief executive officer of Macquarie Infrastructure Partners fund, told a London conference last week. Water is clearly becoming a more obviously crucial area,'' said Neil Berlant, managing director of the water group at Los Angeles-based investment-banking firm Seidler Cos., which doesn't own shares of RWE or Macquarie. The perceived value is climbing and that offers the prospects for these buyers to have substantial growth in profit. RWE got at least three takeover offers in August of about 7 billion pounds each for Thames, including debt, three people with knowledge of the sale said at the time. These included bids from Hands's Terra Firma Capital Partners Ltd. and from a UBS AG fund teamed with the Gulf state of Qatar, according to the people. 18.10.06