LONDON (ShareCast) - Five billion pounds just isn’t good enough, according to water and sewerage group Severn Trent which on Monday rejected an improved offer from foreign investors.

The firm last month brushed off an initial, unspecified bid approach from LongRiver Partners - comprising of Canadian infrastructure investor Borealis, the Kuwait Investment Office and Universities Superannuation Scheme Limited.

The revised proposal was at a price of 2,125p a share, valuing the firm at around £5.2bn, but included the 45.51p-a-share final dividend for the last final year. Assuming that this was already paid, the offer falls to 2,079.49p a share.

In a statement, the firm said: “The board of Severn Trent, having consulted its financial advisers, has unanimously concluded that the revised proposal, which represents a premium of only 16% to Severn Trent's share price the day before the announcement of LongRiver's interest in Severn Trent, fails to reflect the significant long term value of Severn Trent or to recognise its future potential.”

The stock initially surged following the announcement on Monday, erasing earlier losses and rising to an intraday high of 2,080p (+1.36% on the day), but was trading broadly flat at 2,053p by the afternoon. Since the start of 2013, the share price has soared by over 30%.

Chairman Andrew Duff said: "Severn Trent is a high quality company with a record of long-term delivery for shareholders and customers. Our business benefits from long term inflation-linked revenues, good prospects for further capital investment and a strong record of improving operational performance."

He said that the revised offer doesn’t value the company’s “increasingly rare combination of yield, inflation-linked business model and potential”.

Last week the company revealed an 8.2% increase in the full-year dividend despite a 3.3% fall in underlying profit before tax to £266.3m in the year ended March 31st. Turnover rose 3.4% to £1.83bn.

"Surprised and disappointed"

Borealis responded to Severn Trent’s statement on Monday afternoon, saying that it was “surprised and disappointed” at the reaction of the utility firm’s board.

“Our revised proposal is highly deliverable, appropriately financed and would offer certain and compelling value to Severn Trent's shareholders, recognising its higher cost of debt and long term prospects,” said Michael Rolland, President and Chief Executive of Borealis, commenting on behalf of the consortium.

Borealis highlighted that its new offer implied a 29% premium to the average closing price of Severn Trent for the six months before the initial approach was announced.

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