British water company Severn Trent confirmed it had received a takeover approach from a consortium including Borealis Infrastructure and the Kuwait Investment Office.
The move is the latest example of interest in British water companies among yield-hungry investors.
The group, which said on Tuesday the consortium also includes Britain's Universities Superannuation Scheme, said the approach was at a very early stage and no proposal had been made.
Magazine Financial News had earlier reported Severn Trent could be the target of a £5.3bn ($8.1bn) offer by Borealis, a Canadian infrastructure investor.
The consortium, which is being advised by Deutsche Bank, had indicated that Borealis, an arm of the Ontario Municipal Employees Retirement System, and the Kuwait authority would be willing to offer between 22.5 pounds and 23 pounds a share for the British utility, two sources told the magazine.
Severn Trent was the top gainer on Britain's benchmark FTSE 100 early on Tuesday, surging 18 percent, while rival United Utilities - which has also been the subject of bid speculation - rose by 4.5 percent.
Yield-hungry investors have been showing strong interest in British water and sewerage firms as they seek stable cash flows and a favourable regulatory structure.
Big investors like pension funds and insurers have also been increasingly investing in companies directly or teaming up with partners.
"There have been endless speculations that income-hungry funds would bid for the three remaining listed UK water companies," analysts at brokerage Liberum said in a note on Tuesday.
"But for a potential bid to be made in year three of the five-year regulatory cycle is surprising, and the bidder will be taking on considerable regulatory risk if they pay this sort of premium at this point in the cycle."