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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Near-bankrupt Thames Water paid £20mn to cover the due diligence costs of KKR for its abortive attempt to rescue the UK’s largest water utility.

Thames Water selected KKR, the private equity giant, as its preferred bidder for an emergency rescue earlier this year. Thames Water was obliged to pay for the cost to potential buyers of assessing and researching the state of the utility’s infrastructure, operations and finances under the terms of the deal. The cost of that exercise topped £20mn, according to people familiar with the situation, largely due to fees paid to KKR’s advisers.

KKR pulled out of the deal in June, citing the risk of government intervention. It then passed its due diligence to lenders that are now trying to win approval from regulators for their own takeover of Thames Water, which provides water and sewerage services to about 16mn customers. Any deal will also need to be approved by London’s High Court.

The fees will raise concerns that cash is leaking out of the utility, which receives all of its income from customer water bills. Thames Water is struggling under the weight of £20bn debt and is trying to avoid temporary renationalisation under the government’s special administration regime after its previous owners — a clutch of pension and sovereign wealth funds — wrote off their investments and walked away from the business in 2024.

The scale of the due diligence effort, which included site visits to water and waste treatment facilities, was borne from the poor visibility Thames Water has over the state of its crumbling infrastructure, with documents revealing last year that the utility has failed to map almost a third of its sewage pipe network.

Reports produced by KKR and the creditors underscored the dangers of so-called “single point of failure risk” at some of Thames Water’s biggest sites, according to people familiar with the matter and documents seen by the Financial Times.

Coppermills water treatment works and Beckton sewage treatment works in East London were identified as the two facilities at the highest risk of outages, according to this analysis.

The cost of the due diligence work has added to a multimillion pound fee bonanza for advisers, bankers and lawyers trying to secure the financial future of the troubled company. The total advisory bill could top £200mn a debt restructuring is agreed, the High Court heard earlier this year; costs that the utility itself is covering from its own cash-strapped balance sheet.

KKR’s advisers on its abandoned bid included investment bank PJT Partners, law firm Kirkland & Ellis and management consultant Roland Berger.

Had KKR completed its rescue of Thames Water, the private equity firm would have covered the costs of its due diligence, according to a person familiar with the situation.

The senior creditors — which include US investment firms Elliott Management and Apollo Global Management — submitted their latest rescue proposal to regulator Ofwat earlier this month, pledging £3.15bn in equity and a 25 per cent writedown of the nominal value of their exposure. 

They have also asked for concessions on regulatory fines and targets. The creditors said they had “an ambition” to reduce sewage outflows by 30 per cent by 2030, well below the government’s target of 50 per cent.

Rival potential buyers including CK Infrastructure, owner of Northumbrian Water, have recently written to Ofwat claiming they have been “excluded” from the bidding process meaning it was unlikely to get the best deal for customers. CKI has indicated it would bid for Thames Water if the government puts it into its SAR.

The creditors said their plan “will see £20.5bn invested over the next five years and is the fastest and most reliable route to turn around Thames Water, deliver on customer priorities, clean up waterways and rebuild public trust.”  

KKR declined to comment on its due diligence costs.

Thames Water said: “Advisor fees are part of an extensive, complex recapitalisation; customers will not pay for these fees. We remain focused on securing a market-led recapitalisation that establishes the financial and regulatory foundations required to support the investment and performance improvements our customers expect and return the company to a stable financial foundation.”    

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The Tony Blair Institute is undergoing a major restructuring that includes staff lay-offs, as the not-for-profit set-up by the former UK prime minister searches for a more sustainable funding model.

Sir Tony Blair, whose institute advises nearly 50 governments worldwide, emailed staff on Thursday to inform them the TBI would be entering a “new stage of its journey” including changes in senior management, said three people familiar with the matter.

The email spelled out a number of changes affecting the leadership of the organisation including the appointment of a new finance chief and operating officer, while setting out plans for a regional managing director in Europe.

The TBI would also now focus on four global functions with an emphasis on “[artificial intelligence] and innovation”, including the appointment of a new chief AI and innovation officer, former Treasury official and longtime Blair adviser Benedict Macon-Cooney.

“This is a genuine restructuring,” TBI said in a statement to the Financial Times. “We’re evolving, particularly as we focus on governing in the age of AI and the technology revolution.”

Changes come as the not-for-profit, which undertakes commercial consulting to fund pro-bono work for governments, suffered deepening losses last year. TBI reported a $4.3mn loss in 2024 despite turnover increasing 11 per cent to $161mn, according to accounts published earlier this month.

The TBI attributed increased expenditure to rising staff costs — it recruited former Finnish prime minister Sanna Marin and former UK chief of defence staff general Sir Nick Carter last year — as its portfolio of work grew and it expanded to eight new countries.

TBI said: “We have taken the decision in the last couple of years to invest in expansion and run a small deficit, given our strong reserves and cash position.” The TBI had reserves of more than $33mn at the end of 2024.

Staff numbers climbed to 786 in 2024, up from 719 a year earlier, with the bulk of the increase in the not-for-profit’s advisory arm. It incurred $2.2mn in costs attached to redundancies last year, triple the amount incurred in 2023.

Two people familiar with the matter said the not-for-profit has been seeking to increase sources of funding, particularly through consulting work, amid concerns that it was dependent on too few individual donors.

Billionaire Larry Ellison’s contribution in 2023 was equivalent to more than a third of the TBI’s operating costs in the same year.

The Oracle co-founder has pledged or contributed nearly $350mn since 2021, according to public filings. Blair, who serves as the institute’s executive chair, has a close personal relationship with Ellison spanning back to his time serving as Britain’s premier.

“TBI income this year has grown again and will do so again next year. And every year for the last three TBI has increased its own income from sources other than donors,” the not-for-profit added.

The TBI also receives grant funding from organisations including the Gates Foundation, Wellcome Trust and World Bank.

Blair left Downing Street in 2007 after a decade in power. Since leaving office the former British premier has dispensed advice to governments across the globe, while he is expected to play a role on a supervisory board overseeing the running of postwar Gaza.

The TBI has been criticised for undertaking advisory work for controversial clients such as Saudi Arabia, while the FT previously reported that staff were involved in a project alongside Boston Consulting Group that envisaged a “Trump Riviera” in Gaza.

Although Blair does not take a salary from the institute, TBI’s other four directors were paid a total of $2.1mn last year, up from $2mn in the previous 12 months. The highest-paid director took home $1.3mn. The director is not named in the accounts.

Additional reporting by Kieran Smith and Peter Andringa