Li Ka-Shing continues to grow his UK infrastructure and utility portfolio, as well as break new records. A group led by his Cheung Kong Infrastructure (CKI) has agreed to pay £5.8 billion ($9.1 billion) for the UK power distribution business of France's EDF.
The deal, which was announced on Friday, will be the biggest ever Hong Kong investment into Europe, exceeding Hutchison Whampoa's $7.6 billion purchase of a UK 3G licence in 2000.
CKI, controlled by Li Ka-Shing, Asia's richest man, linked up with Hong Kong Electric (39%-owned by CKI) to buy EDF Energy Networks. According to bankers close to the deal, the price is a 22% premium to regulated asset value, and is in line with the 25% premium that the Electricity Supply Board of Ireland is paying for the Northern Ireland assets of Viridian and less than the multiples paid before the credit crisis for North West Electricity and UK water companies.
Nevertheless, it is above the expected price-tag of £5 billion, and follows a bidding contest with a consortium led by Australia's Macquarie Bank.
Li Ka-Shing's strategy is to buy high quality, low risk , regulated assets in stable markets that are familiar to CKI, said bankers. The purchase would add to previous long-term investments in the UK, such as Northern Gas Networks, Cambridge Water and Southern Water. CKI is also apparently examining further opportunities in the UK. Li also owns regulated businesses in Asia, Australia and Europe through CKI.
EDF's electricity distribution network is Britain's biggest, supplying power to 20 million people in London, the east and southeast of England. Arrangements for the deal took about 10 months. The process was drawn out partly due to negotiations over an injection into the UK pension fund. The transaction is expected to be completed in the fourth quarter of this year after EDF has gained European works council, regulatory and shareholder approvals.
RBS advised the CKI group, and EDF was advised by Barclays Capital, BNP Paribas, and Deutsche Bank.
The deal means that inbound M&A into Europe from Asia now amounts to $28.8 billion this year, already surpassing the $24.6 billion announced in the whole of 2009. It is also the biggest inbound transaction into Europe from Asia in over two years, when Aluminum Corp of China and Alcoa bought a 12% stake in Rio Tinto in February 2008, according to data provider Dealogic.
EDF also revealed disappointing first-half results on Friday, posting a 47% drop in year-on-year net profits. Low energy prices meant that the company made a $1.4 billion provision in connection with Constellation, the US nuclear business it bought last year.
The sale of its UK distribution assets will reduce the debts EDF incurred when it acquired British Energy in October 2008. EDF will remain the country's biggest electricity generator and its largest energy supplier.