Hyder plc

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Hyder plc

PO Box 295
Alexandra Gate
Rover Way
Cardiff CF2 2UE
United Kingdom
Telephone: (+44) 1222 500-600
Fax: (+44) 1222 585-600
Web site: http://www.hyder.co.uk

Public Company
1989 as Welsh Water
Employees: 9,400
Sales: £1.29 billion (US$2.1 billion) (1999)
Stock Exchanges: London
Ticker Symbol: WW.A
NAIC: 22111 Electric Power Generation; 221210 Natural Gas Distribution; 221310 Water Supply and Irrigation Systems

Many-headed Hyder (the Welsh word for confidence; rhymes with rudder) plc provides integrated water, electricity, and gas services to some three million customers in Wales and throughout the United Kingdom. More than three million water customers, one million electricity customers, and over 400,000 gas customers have helped Hyder plc claim its status as Waless largest publicly listed company, with more than 9,000 employees and annual turnover of nearly £1.3 billion. In April 2000, however, Hyder prepared to leave the London Stock Exchange when it agreed to be purchased by Japanese bank Nomoru. While the companys new owners pledged to keep Hyders name and especially its Cardiff location, the company continues a restructuring of its operations begun in 1999, including the shedding of more than 1,000 jobs and the jettisoning of its SWALEC (South Wales Electric Company) retail electricity company, in a sale to British Electric finalized in February 2000. The streamlined Hyder will continue to provide water services, including an ambitious investment program and beach cleaning and other related water supply operations. Hyder also provides infrastructure consulting services for such major construction projects as highways and roads, tunnels, bridges, railways, shipping ports, and airports, while extending its infrastructure component to design, build, and operate onsite water and waste management and utility systems for major corporations. Further lessening the companys dependence on the increasingly competitiveyet still tightly price-controlledutilities sector is Hyders increasing investments in the services market. In this sector the company provides a range of services, such as call centers and payroll management to both private companies and government agencies.

19th-Century Sources

Hyder surfaced from two centuries of water provision in Wales. The first private water companies in the United Kingdom appeared in the 18th century, often established by local communities. By the end of the 18th century, the United Kingdoms water supplies were handled by a large number of small, generally locally based companies. This situation began to change in the early years of the 19th century, as the Industrial Revolution transformed the United Kingdoms economic and social landscapes. More and more people were moving to the cities to seek work in the new economy, placing growing pressures on each citys infrastructure.

Water supplyespecially the need to build the pipelines, lay the water mains, and construct other elements of the water supply infrastructurequickly became a government responsibility. By 1848, the first legislation had been passed giving the government control over the water supply industry. Further legislationthe Health Act of 1875gave the government full control of the United Kingdoms water utility sector. While the industrialization of the British economy required a reliable water supply, the increasing recognition of the key role of clean, drinkable water in the maintenance of good health had, by the beginning of the 20th century, also brought the issue of water supply into the sphere of national importance.

In 1924, the government took steps to reform the water industry. In that year, the United Kingdoms water industry was reorganized into a number of regional water councils. Over the next 50 years, the national government increased its position in the countrys water supply, bringing its operation more and more under centralized oversight at the national level. This process was completed in 1973, when the Water Act of that year created a network of ten regionally operating water authorities. One of these new bodies was the Welsh Water Authority, based in Cardiff.

Nationalized control lasted only as long as the Labour Party-led government. The rise to power of the conservative government led by Margaret Thatcher introduced a new wave of privatization, as many of the countrys hitherto government-operated industries and companies were turned out into the private sphere. Welsh Waters turn came in 1989, when the Water Industry Act of that year transformed the United Kingdoms water utility operators into private companies. These companies, with oversight from the governments Office of Water Services, were granted protection from any takeover attempts, as well as relatively high water rates, which seemed at the time to guarantee a healthy and highly profitable future. However, the Water Industry Act also contained provisions requiring the new private water utilities to maintain an ongoing infrastructure investment program.

Drying Up in the 1990s

Welsh Water began its new life with an optimistic plan to expand beyond water supply to become one of the countrys first multiple-utilities providers. Taking the lead of the company was Graham Hawker. A Welsh native, Hawker came from a family that had long worked the regions minesHawkers grandfather, father, and brother had all been miners. When the local mine closed, Hawker had already taken a different path, attending school. After dropping out at the age of 16, Hawker took a position as a clerk in the community wage office. From there, Hawker, who in the meantime had earned an accountants degree, moved to a post with the predecessor to Welsh Water. Rising through the ranks, Hawker had been named finance director when Welsh Water was privatized. In that same year, Hawker helped take Welsh Water public on the London Stock Exchange. The company became Waless largest publicly listed corporation.

Taking over as CEO in 1993, Hawker launched Welsh Water on an ambitious program to diversify its holdings and extend its interests beyond water supplywhich remained subject to strict government controls. The first step of the companys expansion was taken that same year, when Welsh Water acquired Acer Consultants, transforming the company into an internationally operating concern.

Acer Consultants had been formed in 1987 from the merger of two of the United Kingdoms most prominent infrastructure specialists, Freeman Fox & Partners and John Taylor & Sons. Freeman Fox & Partners, one of the worlds first infrastructure consultants, was formed in 1857 by Sir Charles Fox, one of the founders of the British railway system. Foxs career began in the 1820s, when he helped design one of the earliest steam locomotives. Fox opened a building and railways contracting firm, Mssrs. Fox and Henderson, and, in 1851, oversaw the construction of the famed Crystal Palace for that years Great Exhibition in London. One of the first buildings to pioneer modern large building techniques, it was this structure that earned Fox his knighthood.

In 1857, Fox established a consultants firm, and became responsible for the building of a number of important railways, including Londons Central Line, the State Railway in Hyderabad, India. Beyond the British Empire, Foxs firm oversaw the construction of more than 8,500 kilometers of railway in North and South America and in Africa. The company also became a leading bridge specialist, with early projects including the Tower Bridge of London.

By the 1930s, Foxs firm, renamed Freeman Fox & Partners in 1938, was one of the worlds most reputable names in the building of bridges. Among the world landmarks attributed to the firm were the Humber Bridge, then the worlds longest suspension bridge, the Sydney Harbour Bridge in Australia, and the Bosporus Bridges between Europe and Asia. With the rise of the automobile in the 20th century, Freeman Fox & Partners also became leading designers of roadways, including such projects as the M5 Motorway in England, and the Bangkok and Kuwaiti expressways. Freeman Fox also continued its tradition as a railway builder, with the construction of the Hong Kong Mass Transit Railway, begun in 1967 and completed in 1995. By then, Freeman Fox & Partners had merged with John Taylor & Sons, which had specialized in the design of water distribution and sewer treatment systems since its founding in 1869. John Taylor & Sons had been responsible for such major projects as the sewer system in Leningrad and the water supply system for Shanghai. Welsh Waters Acer Consultants unit was renamed Hyder Consulting in 1996.

By then, the United Kingdom was in the middle of an extended drought, placing the water industry under extreme pressure. While Welsh Waterin traditionally rain-heavy Waleswas in less dire straits, the company nonetheless started to feel the heat, and began to look elsewhere to shore up its profits. The delegislation of the United Kingdoms electric power industry seemed a likely bet for Welsh Water, which sought to offer a full package of utilitieswater, electricity, and gasto Wales. In 1996, the company bought SWALEC, the South Wales Electricity Company, paying £900 million, with the purchase financed largely by debt.

Company Perspectives:

Infrastructure for life: From the basic necessities of water and energy, to the enabling infrastructures of transport and telecommunications, and public services like education and healthinfrastructure is an industry with a long-term future. Hyder has chosen to build its business as a private sector provider of infrastructure and public services.

In its move beyond water supply, Welsh Water changed its name to Hyder, using the Welsh word for confidence, while playing on the Greek hydro, for water. The SWALEC acquisition appeared a sound investmentthe company quickly signed on more than 400,000 customers for its gas supply business, some four times more than its original projections. SWALEC also added nearly one million electricity customers to its three-million strong water supply base. In 1998, Hyder reformed its water, gas, and electricity supply businesses into a new subsidiary, Hyder Utilities. Yet the heavy debt brought on by the SWALEC purchase quickly led Hyder into troubleand moves by the new Labour government were to bring Hyder to its knees.

Labours long threat of a windfall tax, designed to retrieve some of the massive profits made by the United Kingdoms water suppliers, came into reality, hitting Hyder for some £300 million. At the same time, the governments new ministers overseeing the countrys utilities clamped down on prices, with water rates reduced between 15 and 20 percent. Hyders debt, and its obligation to continue infrastructure investments, including cleaning up the beaches of its South Wales region, as well as bond obligations scheduled to come due in the first years of the new century, soon brought the once high-flying Hyder down to earth.

The companys initial attempt to fend off financial disaster involved the shedding of some 1,200 jobs from 1999, a move that was criticized as pandering to the companys shareholders. With its stock price plummeting, Hyder ended that year by cutting its dividends. The company was also actively seeking to shed its electric utility business and exit the retail sales sector. In June 1993, Hyder agreed to sell the retail activities of SWALEC to British Energy, for a price of £105 million. That sale was completed in February 2000.

By then, Hyder had already announced that it had run out of financing, and that it expected to run out of capital within 15 months. The company put itself up for sale. Initial attempts to find a single buyer were unsuccessfuland Hyder was forced to consider a breakup, with an offer of £1.73 billion for Welsh Water from Barclays Capital, and a separate offer from U.S.-based South Western Electricity, a subsidiary of Pennsylvania Power and Light, of £600 million for the power distribution wing of SWALEC.

Instead, Hyder finally found a buyer for the whole company. In April 2000, Hyder announced its agreement to be purchased by Principal Finance Group, the London-based arm of Japans Nomura Bank, which had already built up substantial holdings in the United Kingdom, including the Thorn rental chain, some 5,000 pubs, the Angel Trains railway leasing firm, and the William Hill bookmaker company. While Nomuras bid of £402 million was lower than the combined total of the two separate offersleading to disagreement among Hyders board of directorsthe Hawkers backing of the Nomura offer won the day.

The Nomura purchase, which included assumption of Hyders 1.9 billion in debt, for a total price of £2.3 billion, was expected to clear regulatory approval. The purchase also brought in a new chief executive, Mike Kinski, formally chief executive with the Stagecoach rail and bus company. Despite the sale of Waless largest publicly held company to a foreign firm, the purchase was greeted with enthusiasm. Not only was Hyder guaranteed the needed financial backing, Nomura pledged to keep the Hyder name and the companys Cardiff location, thus restoring confidence in Hyders future.

Principal Subsidiaries

Hyder Consulting Group Limited; Hyder Industrial Limited; Hyder Infrastructure Management Limited; Hyder Investments Limited; Laing Hyder plc; UK Highways M40 (Holdings) plc; (40%); Dwr Cymru Welsh Water Ltd.; Hyder Utilities (Operations) Limited (50%); South Wales Electricity plc; SWALEC Gas Limited.

Principal Competitors

Anglian Water; Centrica pie; Kelda Group; National Power PLC; Northern Electric; Pennon Group; PowerGen PLC; ScottishPower plc; Severn Trent PLC; Thames Water plc; Tractebel S.A.; United Utilities.

Key Dates:

Health Act centralizes control of water utilities.
Sir Charles Fox builds the Crystal Palace.
Fox founds engineering consultants firm.
New Health Act places water supply under government control.
U.K. water industry reforms into regional councils.
Passage of Water Act of 1973; formation of Welsh Water Authority.
Passage of Water Industry Act of 1989 privatizes water industry; Welsh Water goes public.
Welsh Water buys Acer Consultants.
Acquires SWALEC; name changes to Hyder Plc.
Hyder Utilities is formed.
Company agrees to sell SWALEC retail arm to British Energy.
Agrees to be acquired by Nomura Bank of Japan.

Further Reading

Callus, Andrew, and Dan Lalor, Hyder Marks Low Tide for Water Stocks, Reuters, December 9, 1999.

Gribben, Roland, Downstream Ride for Water Groups, Daily Telegraph, December 10, 1999, p. 36.

Minton, Ann, Hyder Says Cut in Water Prices Is Impossible, Independent, June 4, 1999, p. 21.

Pickard, Jim, Welsh Dragon No Longer Roars, Financial Times, April 19, 2000.

Rankine, Kate, Hyder Divided but Nomura Bid Accepted, The Scotsman, April 19, 2000.

, Water Chief with a Spring in His Step, Daily Telegraph, June 13, 1998, p. 33.

M. L. Cohen