Vivendi stock drifts following news of three-way merger
- From: Vol 1, Issue 7 (July 2000)
- Category: Performer of the month
- Region: Americas
- Country: United States
- Related Companies: American Water Works, Anglian Water, AWG, Cadiz Inc, Canal Plus, Electricité de France, Kelda, Nomura, Philadelphia Suburban, Seagram, Severn Trent Water, Southwest Water Company, Veolia Environnement (formerly Vivendi Environnement), Western Power Distribution, Western Water Company and Yorkshire Water
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Vivendi dominated the news in Europe in June with the planned IPO of its Environment Unit and the three-way merger with Seagram and Canal Plus making the headlines. Shares in the French conglomerate ended the month lower amid concerns over the merger.
Starting the month at €119, the share price had drifted to €115.10 in anticipation of the deal, then dropped quickly to €98.45 following the 14 June merger announcement.
After reaching a low of €88.10 on 20 June, prices rose slightly on news of Vivendi Environment’s energy pact with Electricité de France (EdF) and the subsequent announcement of the Vivendi Environment IPO, set for 12 July.
A good month in London
Reflecting renewed optimism in the water sector, UK water company stocks enjoyed a general upward trend relative to the FTSE 100 Index, which actually declined slightly amidst uncertainty in the broader market over a possible interest rate hike by the Bank of England.
Earlier in the month, Severn Trent and Anglian Water each announced restructuring plans aimed at increasing shareholder value in the face of regulatory rate caps and investment requirements.
Severn Trent’s share price increased 18.7% over the month following its acquisition of UK Waste as part of a move to diversify away from the regulated water sector. Anglian reorganised its financial structure, creating AWG, a holding company that will allow it to recover up to £160 million in unrealised advance corporation tax surplus while the company expands its water business outside the UK. By month-end its share price had risen 9.7%
A rapid mid-month rise in the shares of all the major water company stocks followed the 14 June announcement by Kelda Group of its plan to transfer ownership of its regulated water business, Yorkshire Water, to a mutually-owned company, while retaining operational control of Yorkshire.
The disposal of Yorkshire is expected to allow Kelda to ultimately return up to 275 pence per share to its investors while producing cost savings to the group of roughly £10 million annually. By month-end, however, Kelda shares had declined on concerns of regulatory opposition to the move.
Shares in Hyder plc, meanwhile, continued to be buoyed by the likelihood of a new round of bidding in the competition between Nomura Securities and Western Power Distribution for control of the Welsh utility.
News of merger hits Philadelphia Suburban
Across the Atlantic, ripples from the Vivendi/Seagram deal drove down shares of American water utility Philadelphia Suburban Corp. (PSC), in which Vivendi holds an 18% equity stake.
Following the merger announcement, shares of Philadelphia Suburban fell from $231/2 to $201 5/1 6, prompting reassurances from both PSC and Vivendi Water over Vivendi’s continued long-term commitment to the utility. Both companies confirmed that the flotation of up to 40% of Vivendi Environment’s capital would not affect the firm’s investment in PSC. By month-end, PSC shares had begun to rebound.
Shares of American Water Works remained higher through June, continuing the upward trend that followed the company’s May announcement of increased first quarter earnings. The company recently amended its rights agreement, which would protect shareholders in the event of a hostile takeover bid. The company said the move was only a precaution and did not indicate any immediate concern.
Shares of companies with a stake in developing water markets in the American West, such as Southwest Water, Cadiz and Western Water rose slightly during June, in response to a recent policy decision by California’s Metropolitan Water District to facilitate water transfers. The move is seen as a first step in removing institutional obstacles to the further development of water markets in the region.