Water group AWG, owner of Anglian Water Services, has seen its shares jump over 20% after it rebuffed a takeover approach from the German private equity group West LB.

AWG dismissed the £900m ($1.5m) verbal offer for falling "well short of an acceptable price".

There is sufficient valuation upside for WestLB to raise its bid UBS Warburg

But West LB admitted on Monday it was still interested in the water group, sparking suggestions that it would come back with a higher offer.

Analysts said AWG was not adverse to a takeover in principle, but that it was a question of price.

Damp offer

Shares in AWG, based in Huntingdon, Cambridgeshire, jumped 22.5% before settling up 19% at 510p per share by mid-afternoon - the same value as West LB's initial approach.

But some analysts suggested AWG was worth as much as 600p per share, keeping interest in the group high.

"We believe there is sufficient valuation upside for WestLB to raise its bid," said analysts at UBS Warburg.

AWG is developing its property arm

A possible hindrance to WestLB's ambitions could be competition concerns.

The German group already owns Mid Kent water but the told Reuters news agency it could resolve any regulatory issues.

Back in the headlines

AWG has spent much of the last year restructuring its business, focusing not just on utilities but also on support services and infrastructure management.

In November, it announced plans to sell off its overseas businesses and concentrate on the UK.

Fraud allegations

A text book example of mismanagement and financial damage Sir Fraser Morisson

Click here to read more about the Morrison case

The takeover approach comes just a week after AWG launched High Court action against two former directors of the construction firm Morrison Group.

The company acquired Morrison two years ago but claims the former chairman and chief executive Sir Fraser Morrison and the former operations director Stephen McBrierty misled it over the deal.

Utility buy-up

A deal between West LB and AWG would be the latest in a series of takeovers by private equity groups in the utility sector.

In the past 10 years, the number of regional water and sewerage companies in the UK has halved, from 10 to five.

West LB meanwhile is also rumoured to be busy with another bid for Odeon Cinemas.

The cinema chain is currently owned by rival private equity firm Cinven.