First Islamic is South Staffs buyer

A WEEK of feverish speculation over the identity of South Staffordshire's suitor ended today, as the water utility revealed it was being bought by the First Islamic Investment Bank for £236.7m.

The deal ends South Staffs' short-lived but spectacular rise on the Stock Exchange since it demerged from its non-regulated business, HomeServe, last April. The West Midlands utility listed at 657p and its share price has been heading north ever since.

When rumours of the bid were confirmed on 19 October, the shares were changing hands at 880p. The offer, from AquaInvest, First Islamic's bid vehicle, of 1120p, values the company at £142.6m, a premium of 27%, while South Staffs' net debt of £94.1m gives the full price tag.

While South Staffs' regulated water business will provide a steady income, it is the fast-growing non-regulated side that has caught First Islamic's attention and persuaded it to pay a hefty premium.

South Staffs finance director Adrian Page said: 'At present, 80% of our business is on the regulated side. There are a number of opportunities on the nonregulated side such as our new water bottling plant, which is now supplying mineral water to Aldi supermarkets, and our call centre business, Echo.'

Turnover from these two businesses is expected to have quadrupled in the last 12 months to around £2m.

A source in the First Islamic camp said: 'The non-regulated business is very interesting to them, especially because it stems from the regulated business. It's seen as quite low risk and has good cashflow. The management has done a terrific job and the market has not valued it properly.'

The entire management team will be staying on under the new owners.

Waterworth said: 'This is a good opportunity for us to do the things we wouldn't be able to do as a public-company with the nonregulated business.'

Further acquisitions have not been ruled out by the new owners, although they would be subject to regulatory approval.

First Islamic is, in effect, a private bank, made up of a pool of around 1000 investors, both institutions and private individuals, largely based in the Middle East.

In recent months its has poured £410m into a joint venture in Britain to develop wind farms and £232m into self-storage centres.

The deal will not personally enrich the board. Together they own fewer than than 11,000 shares. Chairman David Sankey owns just 1000 shares.