* PPL agrees deal for No. 2 UK electricity network
* PPL to pay 3.5 bln pounds, assume 500 mln pounds in debt
* PPL beats HK billionaire Li Ka-Shing -sources
* Li sought to build on earlier deal with EDF in UK
(Adds E.ON comment)
By Quentin Webb and Soyoung Kim
LONDON/NEW YORK, March 1 U.S. power firm PPL
Corp (PPL.N) is buying German utility E.ON AG's (EONGn.DE) UK
power networks for 3.5 billion pounds ($5.6 billion) in cash to
create one of the largest electricity distributors in Britain.
PPL, which beat a rival bid from Hong Kong billionaire Li
Ka-Shing according to people familiar with the matter, would
also assume 500 million pounds ($800 million) of debt.
The deal, expected to close in early April, would create
the largest network of electricity delivery companies in
Britain in terms of regulated asset value, at a combined $7.8
billion, PPL said in a statement.
The E.ON business, called Central Networks, is the UK's
second-largest electricity distributor and delivers power to
over five million customers. It would add to PPL's existing
pool of 2.6 million customers in South West England and South
and West Wales.
The acquisition furthers PPL's move into steadier,
regulated power provision and away from the competitive
business of power generation. Units with regulated returns made
up just 27 percent of earnings in 2010, but helped by the
earlier E.ON deal, were already forecast to make up half of
this year's earnings.
The sale would also be an important milestone for E.ON,
which is shedding some 15 billion euros of assets. It would
mark the second big deal with PPL, after the latter bought
E.ON's Kentucky-based power unit last year for $6.7 billion in
Hong Kong's Li had also pursued the E.ON assets to add
Britain's second-biggest electricity distribution network to
the largest, which he bought last year from EDF of France.
PPL's bid succeeded because it offered a higher price, not
because Li's rival bid posed bigger competition problems, a
person familiar with the matter said.
Two days ago, the Sunday Times reported Li was the
frontrunner after his investment arm, Cheung Kong
Infrastructure Holdings (1038.HK) (CKI), outbid PPL. But it
said his bid "could be tripped up by competition concerns.
While PPL's credit ratings are already near the bottom of
the investment-grade scale, the switch towards more reliable
businesses will partly compensate for the extra leverage
required by a cash acquisition.
PPL estimates the acquisition will be accretive to its
earnings by about 10 to 15 cents per share in 2011. Assuming a
closing of the deal in April, PPL said it expects to increase
its 2011 earnings forecast to $2.50 to $2.75 per share, up from
the current $2.40 to $2.60 per share.
"Opportunities as compelling as this do not come along very
often ... There are very real opportunities for retainable
synergies that further enhance what already is a compelling
transaction," PPL Chief Executive James Miller said in a
E.ON CEO Johannes Teyssen said the purchase price
represents "excellent value" for the company and the proceeds
of the sale would increase its financial flexibility and
strengthen its balance sheet.
Credit Suisse CSGN.VX and Bank of America Merill Lynch
(BAC.N) advised PPL on the transaction and also provided deal
SOVEREIGN WEALTH FUND
E.ON put the UK networks up for sale in December as part of
a promise to investors that it would divest assets worth 15
billion euros through to 2013, in order to guarantee minimum
dividends while it builds up new markets. [ID:nLDE6A90NG]
The networks provide electricity to about 5 million homes
and businesses in Birmingham and the surrounding Midlands area
The businesses had a combined "regulated asset value" (RAV)
of 2.81 billion pounds ($4.58 billion) as of end-March 2010,
E.ON said in a recent bond prospectus.
UBS analysts said recently that a sale at 3.7 billion
pounds would represent a 17 percent premium to their March 2012
E.ON, the world's largest listed utility, also fielded a
joint bid from the Canada Pension Plan Investment Board (CPPIB)
and Abu Dhabi Investment Authority (ADIA), the emirate's
sovereign wealth fund, people familiar with the matter said in
Last year, Li used CKI and his other investment arm
Hongkong Electric (0006.HK) to buy networks from EDF (EDF.PA)
which provide power to London and southeast Britain for 5.8
billion pounds. CKI and HK Electric officials did not
immediately respond to a request for comment outside normal
Hong Kong business hours.
(Additional reporting by Michael Erman, Editing by Douwe
Miedema, Andrew Callus, Gary Hill)