Cheung Kong Infra plans $12bn merger with Power Assets

Cheung Kong Infrastructure (CKI) has offered $11.6 billion in stock to buy Power Assets in what would be the latest reshuffle of businesses owned by Li Ka-Shing, Hong Kong’s richest man.

The diversified infrastructure conglomerate intends to offer 1.04 shares for every Power Assets share it doesn’t already own, according to an announcement published on CKI’s website. The group will also pay out a special dividend of HK$5 (€0.58; $0.64) per enlarged share following the merger.

The move is intended to provide CKI with access to Power Assets’ HK$67.8 billion cash pile – more than eight times what it currently has in its coffers – so as to prepare the business for a new round of acquisitions. A merger would also bring under one roof a number of shared projects that already represent 60 percent of net assets at both.

It is part of a broader shake-up of Li’s business empire at a time when he is preparing to hand it over to his 51-year old son Victor. The proposed transaction would be the second consolidation move undertaken by the billionaire this year, after his Cheung Kong and Hutchison Whampoa units merged in January this year.

The operation, if approved, would see the new entity bear the English name of CK Infrastructure Assets upon completion. The company will own and manage a portfolio of holdings in 11 infrastructure assets spanning utilities, waste management and transportation in China, Europe and Australia.

While acknowledging that a merger between both units would make strategic sense, a number of observers have questioned whether, in its current form, the proposal is sufficiently generous to Power Assets shareholders.

The exchange ratio of 1.04 CKI shares for every share of Power Assets is based on their ratio from the five days to September 4; over the past three months Power Assets shares were worth an average of 1.11 CKI ones. With the unit’s shares closing at HK67.60 yesterday, CKI’s offer, including the special dividend, only represents a 9.2 percent premium.

The Li family will own 49.2 percent of the combined entity upon completion of the transaction, down from the 75.7 percent it holds in CKI, which already owns 38.9 percent of Power Assets. The deal could unravel if 10 percent of the latter’s independent shareholders vote against it.

CKI made the headlines earlier this year when it teamed up with affiliate Cheung Kong Holding to buy Eversholt Rail, one of the UK’s three largest rail rolling stock businesses, for £2.5 billion (€3.4 billion; $3.8 billion) – “an exceptional price”, commented at the time Ben Loomes, managing partner and co-head of infrastructure at London-listed 3i.

The fund manager owned the company alongside New York-headquartered Morgan Stanley Infrastructure Partners, UK-based STAR Capital Partners and Dutch pension administrator PGGM, which all divested their stakes through the transaction.