Capital Markets

RWE Turns Off Spigot for American Water IPO

German utility operator's CFO sees "unfavorable conditions in U.S.," although others see IPO market as mixed.
Roy HarrisNovember 14, 2007

The planned initial public offering of American Water Works Co. was called off by Essen, Germany-based RWE AG, whose CFO cited “unfavorable conditions in U.S. capital markets” for the action.

The finance chief, Dr. Rolf Pohlig, said in a conference call that “we do not expect that we can achieve an adequate value for American Water at present.” And he said RWE was further announcing that “the conditions for an increased dividend payout ratio of 70 to 80 percent of recurrent net income and a share buyback, both of which were linked to the deconsolidation of American Water, do not exist.”

Some others don’t share the German company’s negative sense about the U.S. IPO market, which has shown mixed results in Wall Street’s turmoil of recent months. Och-Ziff Capital Management Group LLC this week is becoming the first large hedge fund to go public, while Kohlberg Kravis Roberts still plans to go ahead with its IPO and follow the earlier public sale of private-equity houses Blackstone Group and Fortress Investment Group.

Symetra Life Insurance Corp., which has Berkshire Hathaway as an investor, postponed its IPO, blaming factors that included the market’s volatility. But others, like American Public Education Inc. and, earlier, medical-software company Athenahealth Inc., had strong openings.

RWE said American Water would continue to be carried as a fully consolidated company, and not as discontinued operations, as it had originally assumed. The IPO plan had followed RWE’s failed attempt to consolidate municipal water companies in the U.S.

When the IPO proposal was announced in August, the company said the offer would be about $1.5 billion for at least a majority interest in American Water, although it wasn’t more specific. According to The Deal.com, RWE acquired American Water for $8.6 billion in 2003 as part of a plan to consolidate the water market in the U.S., but soon found that few local governments were willing to sell their water operations.

RWE reported today that its earnings prospects remain strong, the company said as it reported a 35-percent rise in net income for the first nine months, and a 17-percent growth in EBITDA.