Dec 28, 2000

Anglian Water Buys Margin Growth with Morrison

Anglian Water sought to buy its way onto a higher earnings growth platform with a 262.5 million pound, 385 pence per share agreed cash bid for Scottish construction and support services company Morrison.

The southeast England regional water company said it expects outsourcing to become increasingly important to utilities industry and that Morrison would help it become a leader in that growth area.

Morrison's shares drove up 8.5 percent to within a penny of the offer price at 384 pence, but Anglian shares weakened two percent to 593 pence.

Anglian told analysts the price amounted to 12.5 times Morrison's projected year-to-March-2001 earnings.

Anglian said the combination would help it to provide a wider range of support services--from the creation of an asset through its long-term operation and maintenance--not only to utilities but also to the transport and property sectors.

"It fits with where the industry's going and its going to be earnings enhancing post goodwill in the first year, so long term it's not a bad move," said analyst Rebecca Reehal of Lehman Brothers. "The only question mark is really what the competition is going to be like, here from other water companies and support services groups with ambitions in the same areas."

Most of Britain's water companies have come under pressure to salvage margins in an industry where regulators have been demanding more tariff cuts and forcing margins down.

"We have created a new sort of company which currently does not exist in the market place," Mellor said.

For Morrison investors, the deal came as a surprise as much speculation had centered on other construction firms after it revealed last week it was in bid talks.

Morrison's business will be as an asset manager for Anglian Water, and the Edinburgh-based company will boost Anglian's design, construction and facility management skills.

Anglian provides water and sewerage facilities to around 5.8 million people in the UK. It also provides water and wastewater services in the Czech Republic, Chile and China through Anglian Water International.

It hopes Morrison will take it further into international growth.

Since privatization in 1989, the company has evolved from simply a water provider in the UK's East Anglia region, to a much broader utilities group.

Its offer price for Morrison represents a 27 percent premium to its mid-market price of 302 pence on August 15 when the construction firm said it was in offer talks.

The all-cash offer will also have a partial share alternative and a loan note alternative and Anglian has already received undertakings from holders of 43 percent of shares.

Founded just after World War II by Alexander Morrison, the Scottish group was floated in 1995 at 115 pence share. Last year it reported profits of 26.8 million pounds on turnover of 509.8 million pounds.

The company, which employs 3,500, said it will continue its relationships with other water companies like Thames Water and Welsh Water.

Both companies ruled out any job cuts from the merger.

(Source: Reuters)