The news sent AWG shares as much as 22.5 percent higher to 525 pence, comfortably above the German private equity firm's 510p per share approach.
"WestLB continues to evaluate making a possible offer," the German company said in a statement, confirming a Reuters report.
AWG, which runs eastern England utility Anglian Water, said on Sunday WestLB's approach was too low. The offer was a 25 percent premium to AWG's closing share price on January 30.
"It's our opinion that the company (AWG) is not totally averse to an offer. It's a question of price," an industry source told Reuters.
Analysts said there was scope for WestLB to raise its bid.
"We believe there is sufficient valuation upside for WestLB to make a higher offer," analysts at UBS Warburg said in a research note. They valued AWG at 600p per share and have a price target of 545p.
West LB, which industry sources say is also in advanced talks to buy Odeon Cinemas from rival private equity firm Cinven, said any offer for AWG was subject to due diligence.
A spokesman also said the firm was confident it could resolve any regulatory and competition issues arising from its ownership of another British utility, Mid Kent Water Plc.
Britain's water industry has been gradually moving into the hands of private equity holders and foreign utilities for several years. After privatization in the early 1990s there were 10 major regional water and sewerage companies listed on the London Stock Exchange. Now there are only five.
The companies are all regional monopolies, heavily regulated by the industry watchdog Ofwat that insists on major infrastructure and environmental investment while bearing down on the prices the companies can charge customers. As a result, the earnings growth, dividends and capital returns that shareholders want have proved hard to achieve, and managers have found that the businesses operate better with debt funding, which in recent times has proved to be cheaper.
Foreign utilities like France's Vivendi Environnement and RWE AG have also bought into the industry for its post-privatization management expertise.
The WestLB spokesman said former AWG manager Gordon Morrison had been recruited to help with its bid plans.
Source: Reuters
