UK water utility agrees to £2.4bn Cheung Kong takeover

Northumbrian Water's directors have said yes to an acquisition offer from a consortium led by Cheung Kong Infrastructure. The deal is being funded with close to £2.2bn of equity. To avoid breaching UK competition law, Cheung Kong sold another UK utility it owned to HSBC for close to £75m.

A consortium led by Hong Kong’s Cheung Kong Infrastructure (CKI) is set to buy UK water utility Northumbrian Water for a total of £2.4 billion (€2.7 billion; $3.9 billion), both companies announced in a statement today.

The announcement comes after Northumbrian’s board of directors agreed to the takeover offer. But conclusion of the deal –  which also includes a “net final dividend of 9.57 pence per share,” Northumbrian had previously said – is still subject to certain regulatory approvals and final agreement from Northumbrian’s shareholders. Northumbrian provides water and sewerage services to some 2.7 million people in northeast England and water services to about 1.8 million people in southeast England.

Crucially, CKI has already secured the backing of the Ontario Teachers’ Pension Plan (OTPP), Northumbrian’s largest shareholder with 26.8 percent of the utility, which “has irrevocably undertaken to vote in favour of the scheme [and] has also undertaken not to bid, or participate in any bid, for Northumbrian,” CKI said. Adding non-binding commitments from other shareholders, a total of 33.6 percent of Northumbrian’s shareholders are already backing CKI’s offer, the firm stated.

To date, no other bidders have come forward with an offer for the UK utility. 

CKI, owned by business tycoon Li Ka-Shing, is acquiring Northumbrian together with CKH and LKSFL, two other companies owned by the businessman. The consortium will fund the deal with close to £2.2 billion of its own equity. The balance of the funds will come from loans provided by the Royal Bank of Canada, HSBC and Barclays Capital. CKI added that £600 million of its £879 million equity contribution will come from equity bridge loans provided by HSBC and Japanese bank Mizuho. 

To avoid breaching UK competition law, CKI sold its 100 percent stake in Cambridge Water, another UK utility, to HSBC for an enterprise value of £74.8 million. The purchase price breaks down into £45.9 million of equity and £28.9 million of Cambridge Water’s existing debt commitments. CKI also owns a 4.75 percent shareholding in UK utility Southern Water.

Last November, CKI paid £5.78 billion to take over the UK power grid business of French utility EDF, comprising three regional networks serving some 7.8 million customers in London, south-east and eastern England. The Hong-Kong investor also owns stakes in UK gas network Northern Gas Networks and Seabank Power, a power plant in Bristol which generates some 1,140 megawatts of power.