AWG falls on doubts over Saunders bid

AWG, the UK water company, saw its shares fall to a three-month low yesterday on speculation that the German bank WestLB would not be able to steam ahead with its planned acquisition of the UK water company.

The share price of AWG fell 20p to 500p on reports that West LB was having trouble selling Mid Kent Water. City sources believe the lead bidder for the business, Australian bank Macquarie, has pulled out of talks to complete the £100m deal. Under UK water regulations, WestLB needs to sell Mid Kent before it can buy AWG because it cannot own both.

Robin Saunders, WestLB's former high-flying star, last month made an unofficial offer for AWG at between 520p and 545p a share, valuing the group at nearly £1bn.

The development is especially unwelcome for Ms Saunders and her principal finance division since they are already the subject of an inquiry by the German banking regulator. The investigation is thought to centre on West LB's financing of struggling TV rental business Box Clever, over which the bank has had to take a £350m provision.

Sources close to the bank insisted the waning of interest by Macquarie was not a problem, because the Mid Kent business had attracted other bidders. They also suggested WestLB could "warehouse" Mid Kent while it went ahead with its proposal for AWG. Others suggested the development was a serious setback because WestLB has been negotiating exclusively with Macquarie for some time and now must spend time reheating interest from other bidders. Warehousing Mid Kent would not be desirable for the bank, which does not want overexposure to the water and utilities market.