The battle for control of UK water firm AWG Plc heated up on Monday despite the company's agreement of a 2.2 billion pound ($4.1 billion) offer from an investment group called Osprey.

AWG said it had received new bid approaches from unnamed third parties, sending its shares up more than 5 percent to a record 1,629 pence, some 50 percent above its level at the end of 2005.

AWG stock, which jumped on September 14 when it first revealed a bid approach, is trading well above Osprey's bid of 1,555p a share in cash, but AWG added that under the terms of the agreement Osprey will have the right to match any competing offer without losing its board recommendation.

There can be no certainty that an offer will be made by any of these third parties ... In the meantime, the board of AWG reiterates its recommendation of the offer which has been made by Osprey, AWG said.

The offer by the investment group comprising Canada Pension Investment Board, Colonial First State Global Asset Management, an asset management division of Commonwealth Bank of Australia, Industry Funds Management and 3i Group plc represents a 0.6 percent premium to Friday's close.

We are long-term investors and we are looking forward to supporting management's strategy of concentrating on delivering first-class service to customers and on its regulatory obligations while seeking further operating and capital expenditure efficiencies, the consortium said.

Osprey, which needs at least 75 percent of voting rights to succeed, said it has a 12.47 percent of AWG.

The offer values AWG, which supplies water and sewerage services to about 5.5 million people in eastern England, at 25.3 times forecast current year earnings, sharply higher than the UK water and utilities average of 13.6, according to Reuters Estimates.

WATER FIRMS TARGETED

The offer is 18 percent above our fundamental valuation of the stock ... The only justification for a bid at these prices, is if the bidders have a lower cost of equity assumption about the water sector than does the market, down close to the cost of debt, Lakis Athanasiou, a Collins Stewart analyst said.

AWG shares were up 4.8 percent at 1,619p by 1225 GMT.

Charles Stanley also said it believed AWG shares were expensive and repeated a sell rating.

Now sitting on a P/E (price-to-earnings ratio) of 24.1 times to March 2007... we continue to believe that the shares are expensive and recommend that investors look to exit their shareholdings, its analysts said.

UK regulations make it difficult for companies that already own water assets to buy another water company, leaving the door open for financial investors attracted by water firms' stable cash flows.

Hastings Funds Management Ltd, a unit of Australia's Westpac Banking Corp., said on Monday it had bought British water utility South East Water for an implied enterprise value, debt and equity, of 665.4 million pounds.

Several financial investors are also competing for Thames Water, which provides water and sewerage services in London and is being sold by German utility RWE AG (RWEG.DE: Quote, Profile, Research) for about 7 billion pounds.

Terra Firma Capital Partners, a consortium of UBS and the Qatar government, and another being formed by Australia's Macquarie Bank Ltd are set to submit second-round bids for Thames on October 10, sources familiar with the matter told Reuters in September.

AWG, which in May reported full-year profit had more than trebled thanks to larger bills for its customers, said last week its Anglian Water arm had performed materially above its expectations in the first half and its non-regulated businesses performed as expected.

Morgan Stanley and Dresdner Kleinwort are joint financial advisers to AWG and Lexicon Partners and Deutsche Bank advised Osprey. The bid is part-financed by a loan from Deutsche Bank.

Canada Pension Investment Board and Colonial First State Global Asset Management each own 32.3 percent of Osprey, while Industry Funds Management has 19.4 percent and 3i controls 16.1 percent.

(Additional reporting by David Cullen and Mathieu Robbins)

United kingdom Investment Morgan Stanley