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Severn Trent Bid Rejection Causes Ripples

June 12
11:07 AM 2013
(Photo : Reuters)
Private equity firm KKR & Co LP on Thursday kicked off a joint venture with Suez Environment to run the water and wastewater systems of a New Jersey city it hopes will become a model for cash-strapped local authorities in the United States.

Many hedge fund firms anticipated that the offer made by the Canadian pension fund led consortium would be accepted by Severn Trent, the water utilities company. This anticipation though have turned to losses after the executive management of the utilities firm had refused to discuss on a takeover. This further casts a pall of darkness on the immediate earning future in the current weak mergers market in Europe.

The latest turn has made the LongRiver consortium had walked away from the deal after the British firm had let the deadline set by the bidders as to the response expire last Tuesday. With the expiry of the deadline, Severn Trent had lost its right to negotiate on the pricing of the shares being sought to be purchased.

With this development, Severn Trent shares fell 8.3% last Wednesday and with the previous declines resulted in the share values below the firm's pre-bid price. This had a ripple effect for hedge funds who had started to hoard shares in the past weeks with the hope that the deal would be made at a share price higher than their purchase. 

According to one hedge fund investor who spoke on condition of anonymity, "It's pretty disappointing. It looks like the bid/ask spread wasn't that wide so it's perplexing. The bigger problem here is the current deals environment."

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