FRANKFURT/LONDON France's EDF (EDF.PA), the world's second-largest utility, agreed to sell its British power grids to two Hong Kong bidders for more than 5.5 billion pounds ($8.6 billion), two sources told Reuters.
Hongkong Electric (0006.HK) (HKE) and Cheung Kong Infrastructure (1038.HK) (CKI), which is controlled by billionaire Li Ka-shing, won the auction for the three power distribution grids and the private power networks, three people told Reuters.
The sources, who have direct knowledge of the process, declined to be identified as the sale is still confidential.
EDF will announce the sale in Paris later on Friday, when it is due to also release its first-half results, the sources said.
The French power provider declined to comment.
Representatives from HKE and CKI in Hong Kong also had no immediate comment. Trading in shares of both firms was suspended.
CKI is led by its chairman Victor Li, the eldest son of billionaire Li, who chairs Hutchison Whampoa Ltd 0013.HK, which owns 85 percent of CKI. Cheung Kong Infrastructure owns close to 39 pct of HKE.
HKE and CKI beat the only other remaining bidder in the process, a rival consortium that included Macquarie Group (MQG.AX), Canada Pension Plan (CPP) and the Abu Dhabi Investment Authority (ADIA).
Deutsche Bank, Barclays Capital and BNP Paribas advised EDF, while The Royal Bank of Scotland advised HKI and CKI.
The acquisition could help boost CKI's earnings by 10-15 percent next year as it puts its HK$10 billion in cash to better use, said one analyst at a major Western bank, who could not be named due to company policy. It could also boost HKE's 2011 earnings by 5-10 percent, he added.
"It's definitely a good catalyst for the stock because the EDF deal has been happening for more than six months now," he said. "The market has been very disappointed about repeated delays to this deal."
The transaction is the largest such deal since October 2006, Thomson Reuters data shows, when a group of investors including Macquarie funds bought Thames Water for 8 billion pounds and rival water firm AWG was sold to funds including CPP for 5.57 billion pounds.
The credit crisis hampered funding for these kinds of deals that rely heavily on cheap debt in order to ramp up returns from low-margin infrastructure companies.
A significant part of the final price is explained by the unregulated private networks, one of the people familiar with the matter said.
The overall deal, taking the private networks into account, is roughly three-fifths debt-funded, this person added.
Utilities throughout Europe are shedding assets to pay for billions of euros of takeovers and to raise money for billions of euros of upcoming investments in new power plants.
The deal comes as part of a slew of grid sales by utilities in Europe, partly for regulatory reasons and partly because the assets no longer provided the returns the utilities expected.
Both E.ON (EONGn.DE), the world's largest utility by sales, and Sweden's Vattenfall [VATN.UL] sold their high-voltage, long-distance power grids in Germany.
(Additional reporting by Doug Young, Alison Lui and Sui-Lee Wee in HONG KONG and Michael Smith in SYDNEY; Editing by Bernard Orr, Carol Bishopric and Ian Geoghegan)