Northumbrian Water shares leap today after the Sunday Times broke the news that Ontario Teachers’ Pension Plan may bid 1.7 billion pounds for the water utility. Northumbrian jumped almost 13% and Severn Trent plc and United Utilities both gained about 5%.
The Canadian Teachers Pension Fund already owns 27% of Northumbrian Water putting it in a strong position. Despite the tough Ofwat ruling water companies are attractive to pension companies as they offer very stable, low risk income streams. The Canadian Pension Plan is a major stakeholder in Anglian Water Group.
Infrastructure funds and pension groups are good partners for water companies as they tend to be long term investors content to let management run the business provided they deliver stable cash generation. The certainty they provide encourages long term decision making and investment where it will protect or enhance the asset base. The evidence from Anglian Water and Yorkshire Water is that having a pension company as stakeholder does not inhibit innovation instead it encourages investment where there is a clear return to stakeholders and high operational performance.
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