RWE exits American Water

Image courtesy of American Water

RWE has announced it has sold its remaining 23.6% stake in American Water for $21.63 a share. It was only six years ago that American Water paid $8.6 billion to buy the business at a very high 2.7 times book value. The share sale values American Water at only $3.4 billion meaning that RWE has made a hefty loss on the deal.

The sale marks the end of an era. It was in 2000 that RWE bought Thames Water to create its fourth core segment and make RWE the third largest water utility operator in the world. The acquistion of American Water followed in 2002. Only three years later it decided to start pulling out of water and go back to its core energy business due to its frustration with the slow growth prospects and capital intensive nature of the water industry. RWE did mange to sell Thames Water to Macquarie Bank in 2005 for a profit but overall the diversion into water has been an expensive exercise.

It is surprising how many companies down the years have thought creating a water business by acquisition was a sure fire bet. The ones who have been successful tend to be those who have been patient, willing to grow their business organically and build it on a clear competitive edge. Dow Water and Process Solutions is a good example.