JPMorgan Group to Buy Southern Water from Royal Bank of Scotland

Includes: JPM, RBS
by: Susan Lerner

A group led by JPMorgan and Australia's Challenger Infrastructure Fund will pay £1.3B to acquire Southern Water Capital Ltd. from Royal Bank of Scotland, beating out several other bidders, including a consortium led by Goldman Sachs Group. Given the current global credit crunch, there has been great interest in utilities, which generally sustain cash flow even in times of economic uncertainty. "Southern Water has significant real per annum growth rate, double the industry average ... and that's what made it so attractive to us," Challenger Chief Executive Steve Bickerton told Reuters, adding that there were "significant operating efficiency gains to be had." He refused to rule out job cuts. Greensands Investment Ltd., which also includes UBS AG and Access Capital Partners, Hermes Pensions Management and Paceweald, also will assume £2.9B of debt of Southern Water, a British wastewater company, bringing the total value of the deal to £4.2B. Challenger will hold a 27% stake in Southern Water; JPMorgan 32%; UBS and Access Capital 18% each; Hermes 4%; and Paceweald 1%. Southern Water, one of the UK's fastest growing water companies, has some 2,000 employees providing water to a million households in Southeast England and treating dirty and recycled water from 2 million homes.

Sources: Bloomberg, Financial Times, Reuters
Commentary: Water Industry ETFs Should Continue to PerformUtility Consolidation: Companies to Watch
Stocks/ETFs to watch: JPM, RBSPY, UBS, GS. ETFs: XLU, UTH, IDU

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