Cheung Kong Infra to buy EDF’s UK network

EDF, the French energy group, has entered into exclusive negotiations with a consortium led by Hong Kong’s Cheung Kong Infrastructure after it submitted a bid of £5.8bn for EDF’s UK network, representing a 27% premium to its regulated asset base.

French energy group EDF has granted a consortium led by Hong Kong’s Cheung Kong Infrastructure (CKI) exclusivity to negotiate the purchase of its UK electricity network.

The decision came just a few days after EDF received binding bids from the CKI consortium and another team comprising Macquarie, sovereign wealth fund Abu Dhabi Investment Authority and pension Canada Pension Plan Investment Board, with the announcement coinciding with the release of the energy group’s half-yearly results.

In them, EDF said it had received an irrevocable offer from a consortium comprising CKI, subsidiary Hongkong Electric and the Li Ka-Shing Foundation, also known as the Cheung Kong Group, valuing its UK distribution network at £5.8 billion (€6.9 billion; $9 billion) including EDF’s assumed debt. EDF said the equity portion of CKI’s offer amounts to £3.2 billion. Li Ka-Shing is Asia’s wealthiest man and the owner of CKI.

The offer represents a 27 percent premium to the roughly £4 billion billion regulated asset value of EDF’s UK network as of April 2010 and an 8.1x multiple of the UK network’s estimated earnings before interest, tax, depreciation and amortisation (EBITDA) for 2010, EDF said.

The CKI consortium’s offer will remain open for acceptance for three months, expiring on October 24, CKI said in a statement. It added that it has been granted exclusivity to negotiate the purchase over the next 12 months.

In addition to the Macquarie-led consortium, a team comprising utility Scottish and Southern Energy (SSE) and Borealis, the infrastructure investment arm of the Ontario Municipal Employees’ Retirement System, also looked at the deal although it was not thought to have submitted a final offer.

That decision was not unexpected, given that SSE warned over a month ago it was not seeking an ownership interest in EDF “that would need to be funded by issuing new shares”, prompting speculation that it was not looking to acquire more than a 10 percent holding in EDF unless it could find another party to top-up its bid.

EDF’s UK network distributes power to almost eight million homes in the south-east and east of England and was put up for sale in October 2008 to help cut the group’s debt.