RNS Number:9046S
Bristol Water PLC
05 December 2003


Bristol Water plc

5 December 2003

Not for release, publication or distribution in or into the United States, 
Canada, Australia or Japan.



                               Bristol Water plc

Bristol Water plc notes the announcement made today by Bristol Water Group plc, 
the text of which is set out below.



                            "Bristol Water Group plc

 Recommended proposals for a return of capital of 135 pence per Ordinary Share

            and establishment of a new executive share option scheme



The Board of Bristol Water Group plc ("Bristol Water Group" or the "Company") is
pleased to announce proposals to effect a return of capital to its shareholders
of 135 pence per Ordinary Share, being approximately #51 million in aggregate.



This will be achieved through the issue of B Shares paid up from the Company's
merger reserve, a cancellation and repayment or future redemption of the B
Shares and a reduction in the nominal value of the Ordinary Shares currently in
issue. With a view to making the future share price more comparable with data
since the share split effected by Bristol Water Holdings plc in July 2003 and to
maintaining the value of options over Ordinary Shares, the Company is also
proposing a consolidation of its Ordinary Shares to be effected immediately
following the issue of the B Shares.



The proposals are subject to the approval of Shareholders and the Court and the
availability of additional finance. A circular setting out the details of the
proposals together with the notice of an Extraordinary General Meeting at which
Shareholder approval will be sought, is expected to be sent to Shareholders
later today. The Extraordinary General Meeting is expected to be held on 5
January 2004.



Background



On 21 July 2003, the Group announced that it was actively reviewing methods of
returning value to Shareholders and that the Board believed that, following any
necessary restructuring, it would be able to recommend a return of 135 pence per
Ordinary Share to Shareholders. This followed the Board's decision to increase
the Group's focus on its core water skills and look at ways to increase
shareholder value through improving the Group's capital efficiency. As a result,
following detailed analysis of the Group's capital requirements, the Board
concluded that shareholder value could be created through increasing the level
of indebtedness in the Group's regulated water business, Bristol Water plc, and
returning capital to Shareholders.



The first step towards enabling a return of share capital to Shareholders was to
create a new listed holding company, Bristol Water Group. Bristol Water Group's
Ordinary Shares were admitted to the Official List and to trading on the London
Stock Exchange on 27 November 2003 following the completion of the Scheme of
Arrangement.



Summary of the Proposals



The Return

Bristol Water Group intends to return 135 pence per Ordinary Share
(approximately #51 million in aggregate) to Shareholders through the issue and
subsequent cancellation and repayment or redemption of the B Shares. The B
Shares will be issued on the basis of one B Share for each Ordinary Share held
at the B Share Issue Record Time, which is expected to be at 5.00 p.m. on 3
February 2004. The B Shares, which will be paid up out of the Company's merger
reserve, will be issued in certificated form only. The Return is subject to the
approval of Shareholders and the Court and to additional finance being in place.



Shareholders have the following choices in respect of the B Shares:



a) Initial Cash Repayment

Under the Initial Cash Repayment, B Shares will be cancelled and repaid pursuant
to the Reduction of Capital. It is expected that the cash entitlements will be
despatched to Shareholders by cheque by 16 February 2004. For each B Share,
Shareholders will be entitled, on repayment, to 135 pence.

b)  Deferred Repayment

Shareholders who elect to retain all or some of their B Shares will not receive
their cash in respect of any retained B Shares until a later date. A
non-cumulative preferential dividend at a rate per annum equal to one per cent.
below 6 months' LIBOR will be paid twice yearly in arrears on 30 June and 31
December on the nominal amount of 135 pence per B Share retained until the B
Shares are redeemed. LIBOR is the variable interest rate at which banks in
London lend to each other and may change. The LIBOR rate will be taken at the
start of the period to which the dividend relates. The first dividend will be
paid on 30 June 2004 in respect of the period from the date the Reduction of
Capital becomes effective to 30 June 2004.



Shareholders will have the opportunity to have all (but not some only) of their
retained B Shares redeemed by Bristol Water Group on 30 June and 31 December
each year at 135 pence per B Share. Following the Initial Cash Repayment, the
first opportunity to have the B Shares redeemed will be 30 June 2004.



US Shareholders should note that they will be deemed to have opted for the
Initial Cash Repayment in respect of their B Shares. Overseas Shareholders
(other than US Shareholders) should note that they may not, if the Company so
determines for regulatory reasons, be offered the option to elect for the
Deferred Repayment and will in that event receive cash pursuant to the Initial
Cash Repayment in respect of their B Shares after the Reduction of Capital
becomes effective.



Shareholders should be aware that the Company retains the right to redeem all of
the outstanding B Shares at any time after 30 June 2004 if the number of B
Shares remaining in issue falls below 20 per cent. of the number originally
issued, or at any time after 30 June 2007.



Consolidation of Ordinary Shares

The Board is also proposing a consolidation of the Ordinary Shares. The main
purpose of this is to assist the comparison between the Company's future share
price with share prices since the five for one share split effected by Bristol
Water Holdings in July 2003, and to maintain the value of options over Ordinary
Shares. Under the Consolidation, Shareholders will be entitled to 53
Consolidated Ordinary Shares for every 100 Ordinary Shares held at the
Consolidation Record Time, which is expected to be at 6.00 p.m. on 3 February
2004. Dealings in Consolidated Ordinary Shares are expected to commence at 8.00
a.m. on 4 February 2004.



If the holding of Ordinary Shares is not exactly divisible by the above ratio,
the entitlement to Consolidated Ordinary Shares will be rounded down to the
nearest whole Consolidated Ordinary Share. Any fractional entitlements will be
aggregated and sold in the market for the benefit of the Company.



The effect of the Consolidation will be to reduce the number of Ordinary Shares
in issue by approximately 47 per cent. to reflect the fact that this proportion
of the Company's market capitalisation is being returned to Shareholders. The
Consolidated Ordinary Shares will have the same rights attaching to them as the
Ordinary Shares in all material respects.



Holders of Ordinary Shares whose holdings are registered in CREST will
automatically have their new Consolidated Ordinary Shares credited to their 
CREST account.



It is expected that definitive share certificates in respect of the Consolidated
Ordinary Shares will be despatched by first class post by 16 February 2004 to
Shareholders who hold their Ordinary Shares in certificated form.



The Reduction of Capital

The purpose of the Reduction of Capital is to implement the Initial Cash
Repayment and to create distributable reserves for Bristol Water Group.



Shareholder and Court approval, together with the additional finance being in
place, is required for all the B Shares in respect of which no valid Form of
Election is received in time to be cancelled in return for a repayment of 135
pence per B Share. These B Shares will not be reissued.



Shareholder and Court approval is also being sought to reduce the nominal value
of the Company's Consolidated Ordinary Shares from 169 43/53 pence to 5 pence.
This will have the effect of reducing the aggregate nominal value of the
Company's issued capital by #32.8 million, but will increase the level of its
distributable reserves by a corresponding amount. These reserves should be
available to enable the Company to fulfil its obligations in relation to the B
Shares held by the Shareholders who elect for the Deferred Repayment and to give
Bristol Water Group additional financial flexibility.



Financing



The Return is subject to additional finance being in place. It is the Board's
current intention to finance the Return by increasing the level of indebtedness
of the Group's regulated water business, Bristol Water plc, by raising up to #55
million of additional borrowings through the Artesian Finance plc and Artesian
Finance II plc monoline wrapped bond programmes (the "Artesian Programmes"). The
Artesian Programmes were used in the Group's refinancing in May of this year and
provide the Group with long term finance which provides a better match than
previous arrangements to the long term capital asset base of the regulated water
business.



The Board has held detailed discussions with The Royal Bank of Scotland plc, the
arranger of Bristol Water plc's participation in the Artesian Programmes. The
key documentation in relation to the additional financing under the Artesian
Programmes has been discussed and all material issues agreed. It is the board of
Bristol Water plc's current intention that approximately 50 per cent. of the
additional borrowing will bear a fixed interest rate with the interest payable
on the balance being at a rate which is index-linked. The board of Bristol Water
plc intends to raise additional funds through the Artesian Programmes following
the approval of the Reduction of Capital by the Court. The finance will be
subject to certain conditions precedent and subject to Bristol Water plc
providing certain representations and warranties at the time that the finance is
provided, none of which are unusual for a financing of this type. The board of
Bristol Water plc has agreed with the Directors to lend approximately #47
million of these additional funds to the Company on an interest bearing basis
for the purposes of funding the Return.



The Royal Bank of Scotland plc has stated that it is highly confident that the
Artesian Programmes will be able to secure the necessary funds to acquire loans
to be made to Bristol Water plc.



Bristol Water plc has entered into a two year #47 million financing facility
with The Royal Bank of Scotland plc. Whilst it is the Board's expectation that
the additional funds required for the Return will be provided by the Artesian
Programmes, this facility provides some protection against certain unforeseen
external circumstances affecting the timely delivery of funds on appropriate
terms, under Artesian Programmes. The facility is subject to certain conditions
precedent and to Bristol Water plc providing certain representations and
warranties at the time of drawdown, which are similar in nature to those under
the Artesian Programmes, and will only be used if the Board considers it
appropriate to do so.



To provide greater certainty on the cost of the additional finance, Bristol
Water plc may enter into certain treasury transactions with The Royal Bank of
Scotland plc. These would provide Bristol Water plc with some protection against
an increase in the underlying interest cost of providing long term facilities,
but would result in a corresponding cost should such interest rates fall.



Proposed changes to Bristol Water plc's licence



Earlier this year, Ofwat indicated that the DGWS would seek modifications to
Bristol Water plc's licence as a water undertaker in connection with the
proposed utilisation of the Artesian facilities to increase the level of Bristol
Water plc's borrowings. The modifications now proposed by Ofwat principally
concern the financial ring-fencing of Bristol Water plc's regulated business,
the management and conduct of that business and the role of Bristol Water Group
as the ultimate owner of Bristol Water plc.



Trading update



Bristol Water Group also announced today the unaudited consolidated interim
results for Bristol Water Holdings for the six months ended 30 September 2003.



The Executive Share Option Scheme



The Board is also proposing to establish a new executive share option scheme.
The Directors believe that it is appropriate to have the Executive Share Option
Scheme in place in order to give them flexibility to recruit, retain and
incentivise key executives. The establishment of the Executive Share Option
Scheme requires Shareholder approval.



Shareholders' undertakings and statements of intentions



Ecofin Water & Power Opportunities plc has given a written undertaking to vote
or to procure a vote in favour of the resolutions to be proposed at the EGM and
not to elect for the Deferred Repayment in respect of 8,934,590 Ordinary Shares
representing 23.83 per cent. of the total issued share capital of Bristol Water
Group. In addition, AXA Investment Managers UK Limited has given a written
indication to the Company of its intention to vote or to procure a vote in
favour of the resolutions to be proposed at the EGM and not to elect for the
Deferred Repayment in respect of 5,623,615 Ordinary Shares representing 15.00
per cent. of the total issued share capital of Bristol Water Group.



Terms used in this announcement have the same meaning as those in the Circular
to be sent to Shareholders later today."



Enquiries



Bristol Water plc                                           Tel: 0117 953 6407
Alan Parsons, Chairman
Andy Nield, Finance Director



Dresdner Kleinwort Wasserstein                              Tel: 020 7623 8000
Ishbel Macpherson, Managing Director



Dresdner Kleinwort Wasserstein Limited, which is authorised and regulated by the
Financial Services Authority, is acting for Bristol Water Group plc and no one
else in connection with the Proposals and is not acting for any person other
than Bristol Water Group plc and will not be responsible to any person other
than Bristol Water Group plc for providing the protections afforded to its
customers or for providing advice in connection with the Proposals and the other
matters described herein.




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