Macquarie group wins Thames Water 

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FRANKFURT, Germany (Reuters) -- A group led by Australian investment bank Macquarie Bank Ltd has won the battle to buy UK utility Thames Water for £4.8 billion, beating rival bidders such as Qatar Investment Authority.

The deal, which totals £8 billion including £3.2 billion of net debt, came as a surprise as Qatar had widely been seen as the front-runner to win the auction for Thames -- owned by German utility RWE AG.

The sale is part of RWE's strategy to focus on electricity and gas businesses, like its bigger rival E.ON.

Macquarie, for its part, searches for assets exposed to limited competition, such as airports, toll roads, property and utilities, which it bundles into managed funds.

Macquarie Bank said it intended to invest about £250 million to take an 11 percent stake in the winning consortium, which also includes two European infrastructure investment funds managed by a member of the Macquarie group, and other investors.

"Included in Macquarie's share price is an expectation that it will lead to a number of such deals. They need to keep the volume going," Wilson HTM analyst Brett Le Mesurier said. "This is another brick in the wall for them."

Macquarie's shares were up 1.2 percent in early trade to Aust. $71.37 in a wider market up 0.3 percent.

RWE and Macquarie announced the much-anticipated deal in separate statements from Frankfurt and London respectively.

Macquarie said the deal was subject to the approval of the RWE supervisory board, which was due to meet at the weekend.

"Following approval, Macquarie will provide further information relating to the transaction and its ambitions and plans for this important business," the bank said in a statement confirming an earlier Reuters report.

In a hotly-contested battle, bidders had until last Saturday to submit their offers for the Reading-based utility, which is Britain's largest water and wastewater services company.

Thames provides drinking water to 8 million people and sewerage services to 13 million customers.

Other bidders included Qatar Investment Authority, the state investment arm of OPEC member Qatar, which made a joint offer alongside the infrastructure arm of Swiss bank UBS AG, and another suitor British financier Guy Hand's Terra Firma Capital Partners, sources close to the sale said last week.

The final price including debt came in at the higher end of analysts' expectations of between £7 billion and £8 billion.

In November last year, RWE announced its plan to sell Thames Water and American Water by 2007. RWE has decided in favor of floating American Water in the United States.

RWE bought Thames Water for €7.1 billion in 2000 and in 2003 paid €4.5 billion for American Water.

The sale to Macquarie came after investment group Osprey Acquisitions raised its offer for another smaller UK water firm, AWG Plc to £2.25 billion last week, representing a premium close to 30 percent of its regulatory asset base (RAB).

This compared with an estimated 23 percent premium paid to Thames Water's Regulatory Asset Base (RAB) -- used by regulators in setting price limits.

The latest development gives RWE Chief Executive Harry Roels the much-needed room to make acquisitions to enlarge Europe's fourth-biggest utility if it wants to prevent RWE becoming a takeover target itself.

Analysts have said the company could become a target after selling its water businesses, because they currently serve as something of a poison pill for potential energy market buyers.

Shares in RWE have risen about 25 percent since the start of the year, in line with the pan-European sector index, as hopes of water business divestment offset worry over acquisition risks and uncertain energy regulations.

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