Severn Trent has said the LongRiver Partners consortium has "not been able, or willing, to bridge the value gap" after the suitors walked away from a potential deal yesterday.

On 10 June, Michael Rolland, President and CEO of Borealis Infrastructure, said on behalf of the consortium that the Severn Trent board had shown no interest in discussing any bids with the consortium and there would be no further proposal after a third bid for the FTSE100 utility was rejected on 8 June.

In a statement issued yesterday, Severn Trent said it had always been open to discussions through the process, provided that LongRiver put forward a proposal which “properly reflected the long-term value and future potential” of the water company.

“The Board has carefully evaluated each of the proposals it has received from LongRiver against its understanding of Severn Trent's long-term value and potential,” the statement reads.

LongRiver tabled three bids for the utility between 14 May and 7 June with the final offer valuing Severn Trent at £5.3 billion.

Andrew Duff, the Chairman of Severn Trent, said:

"Throughout the course of this process we and our advisers have held talks with, and given careful consideration to every proposal made by the Consortium. We have consistently made clear to the Consortium our belief that Severn Trent has a value to our shareholders above the level it indicated it was willing to pay. This difference in value has been at the heart of this process and the Consortium has either not been able, or willing, to bridge that value gap.

“We have every confidence in the long-term future and significant value of Severn Trent and look forward to continuing to deliver for all of our shareholders, customers and other stakeholders."

Severn Trent said it has confidence in its future with its RCV set to grow and is “well prepared for the next price review and for longer-term developments in the future regulatory landscape for the water industry.”

City analyst recommends Hold position in Severn Tent shares

Following the announcement, S&P Capital IQ Equity Research Analyst, Clive Roberts said:

“The consortium's two conditions of making an offer were on receiving the recommendation of Severn Trent’s board and the completion of due diligence. Under the Takeover Panel's rules, the consortium is now restricted from making another offer within the next six month period. Severn Trent stated that it had not been contacted by LongRiver after June 7 and that the consortium appeared unable or unwilling to bridge the "value gap" and make an offer reflecting the "long-term value and potential" of the group. We maintain our forecasts, DCF-based 12-month target price of GBP18.  Our recommendation is Hold."

“Severn Trent’s strategy is to improve efficiency and operating standards by targeting upper quartile industry performance across 20 key indicators. It believes it can outperform Ofwat’s targets for the financial year 2011-2015 (AMP5) regulatory period by 2% on operating expenditure and 10% on its GBP2.6 billion capital expenditure programme, thanks to its “early start” approach with contractors, office rationalisation and IT system upgrades that cut back office staff by 275 (25%), saving GBP10 million per annum. It has also hedged its power costs until  2014, saving GBP25 million, and fixed a significant portion of its debt at interest rates below those assumed by Ofwat, locking in GBP20 million per annum of financial outperformance. Severn Trent Water (STW) expects its Regulatory Asset Value (RAV) to rise to GBP8 billion in 2015 (from GBP7.4 billion in 2013).”