Severn Trent Water buys rival Dee Valley Water in £78.5 million deal

Severn Trent will pay 1,705p a share for Dee Valley Water, which serves around 260,000 customers in areas around the Shropshire border, Cheshire and North Wales and takes water from reservoirs along the Elan Valley.

The companies said the deal could lead to cheaper water prices for Dee Valley customers, including people living around Chirk, Penley and Bronington on the Shropshire border near Ellesmere and Whitchurch.

Severn Trent is already the water supplier to homes and businesses across Shropshire.

The move sees Severn Trent gatecrash plans by rival bidder Ancala – an infrastructure investment manager – which had agreed to buy Dee Valley for around £71.3m.

Dee Valley said it was now backing Severn Trent's higher bid and had withdrawn its recommendation for Ancala's offer.

Severn Trent said Dee Valley would be a good fit with the firm, as it operates in neighbouring areas to the group, and the companies said the move would allow customers to benefit from cost savings achieved through "wholesale cost efficiencies".

It added that it would continue to invest in Dee Valley, having earmarked £3bn for an investment programme in the region, and would also support vulnerable customers.

Severn Trent chief executive Liv Garfield said: "The announcement of our purchase of Dee Valley represents an opportunity for Severn Trent to apply its successful operating model for the benefit of customers across an enlarged asset base, in a neighbouring geographic area."

"We intend to bring real benefits to Dee Valley's operations and customers by bringing best practice and investment to support and enhance the service the company provides and by sharing the savings we can generate."

Dee Valley Group achieved revenue of £23.1m and operating profit of £6.6m in the year to March, and Severn Trent said the "economies of scale" achieved through the deal would bring additional benefits to its shareholders.

However, it plans to retain a separate Welsh licence for its operations over the border, and to retain the business's "Welsh identity".

The extra 260,000 customers will add to the 4.3 million homes and businesses already served by Severn Trent, while the turnover will come on top of the £1.79bn the company already enjoys.

Dee Valley chairman Jon Schofield added: "The Board of Dee Valley has reached agreement on the terms of a recommended acquisition of Dee Valley by Severn Trent Water.

"We believe that the acquisition provides attractive value to Dee Valley shareholders."