* Biggest North Asian takeover in Europe
* Deal could boost CKI’s 2011 earnings 10-15 pct -analyst
* Buyers to raise 655 mln stg in loans
* CKI shares up 0.69 pct, HKE up 0.64 pct, EDF up 1.12 pct
(Adds CKI quotes, graphics, detail on Li, financing, valuation)
By Quentin Webb and Sui-Lee Wee
LONDON/HONG KONG, July 30 (Reuters) - Hong Kong billionaire Li Ka-shing is to buy UK power grids from France’s EDF (EDF.PA) for 5.8 billion pounds ($9.1 billion), the biggest full European acquisition by a North Asian group.
The tycoon’s investment vehicles Cheung Kong Infrastructure (1038.HK) (CKI) and Hongkong Electric (0006.HK) (HKE) said they would buy three British electricity distribution networks and a private power networks business from EDF, the world’s second-largest utility.
The sale to the octogenarian Li, ranked by Forbes as the world’s 14th richest man, in one leap comfortably beats EDF’s 5 billion euro ($6.5 billion) target for asset sales to cut debt.
Martin Young, an analyst at Nomura in London, said EDF had achieved “a very good price indeed, in this day and age”, with the company touting a 27 percent premium to the end-March “regulated asset base” (RAB) value ascribed to the networks.
The purchase caps a process that has dragged on for more than a year, delayed by a change in EDF management, British regulatory rulings, and difficulties with pension trustees.
Analysts said the deal would double CKI’s presence in the United Kingdom, helping to overcome its limited room for domestic growth. CKI already invests in Britain’s gas and water industries and owns utility businesses in Australia, Canada and New Zealand.
EDF’s distribution network is Britain’s biggest, supplying power from the high-voltage grid to 20 million people via three adjacent networks in London and England’s east and southeast.
The private networks business delivers power under decades-long contracts to the London Underground, Heathrow airport and the Channel Tunnel.
CKI and earlier bidder Scottish & Southern Energy Plc (SSE.L) had complained about the state of the networks, with SSE decrying its deteriorating reliability, and CKI saying it needed to spend “a lot more” than first planned on network upgrades.
The buyers will take on about 3 billion pounds of existing bond debt, contribute more than 2 billion pounds of equity, and have arranged 665 million of new loans from seven banks, people familiar with the matter said.
They target a rate of return of about 12 percent, one of the people added.
The purchase ranks behind the $14.3 billion that Aluminum Corp of China (Chinalco) paid for a 12 percent stake in Anglo-Australian miner Rio Tinto (RIO.L)(RIO.AX) in late 2008, Thomson Reuters data shows, but would be North Asia’s biggest single takeover in Europe.
For a graphic on the deal, and British utilities M&A, click: here
CKI and HKE would each hold 40 percent of the entity buying the UK assets, with the rest held by two foundations controlled by Li, the companies said in a statement.
Hutchison Whampoa Ltd 0013.HK, chaired by Li, owns 85 percent of CKI. Cheung Kong Infrastructure, headed by Li’s son Victor, owns close to 39 pct of HKE.
The grouping beat a rival consortium that included Macquarie Group (MQG.AX), Canada Pension Plan (CPP) and the Abu Dhabi Investment Authority (ADIA).
In Paris, EDF confirmed the offer and said the deal was at a multiple of 8.1 times the business’s estimated 2010 earnings before interest, tax, depreciation and amortisation (EBITDA), as it reported first-half results. [ID:nLDE66T05Z]
The purchase may silence critics concerned that CKI has been sitting on too much cash for too long. CLSA says it has cash reserves of HK$10 billion, which it needs to deploy to get a higher return.
The deal should boost CKI’s earnings by 10 to 15 percent next year, said an analyst at a major Western bank, who could not be named due to company policy. HKE’s 2011 earnings could increase 5 to 10 percent, he added.
Utilities throughout Europe are shedding assets to pay for billions of euros of takeovers and to raise money to invest in new power plants.
The deal, which is subject to regulatory approvals, comes as part of a slew of grid sales in Europe, partly for regulatory reasons and partly because the assets no longer provide the returns the utilities have expected.
European regulators have pushed for the separation of power transmission -- the service performed by high-voltage grids such as Britain’s National Grid -- and power generation.
Both E.ON (EONGn.DE), the world’s largest utility by sales, and Sweden’s Vattenfall [VATN.UL] have sold their high-voltage, long-distance power grids in Germany.
Deutsche Bank, Barclays Capital and BNP Paribas advised EDF, while Royal Bank of Scotland advised HKE and CKI.
Shares of CKI rose closed up 0.69 percent in Hong Kong after the announcement, and Hongkong Electric gained 0.64 percent. In Paris, EDF shares were up 1.12 percent in afternoon trade. ($1=.6395 Pound) (Additional reporting by Peter Dinkloh in FRANKFURT, Victoria Bryan in LONDON, Doug Young and Alison Lui in HONG KONG and Michael Smith in SYDNEY; Editing by Don Durfee, Ian Geoghegan and Will Waterman) ($1=.7664 Euro)