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Wales & West sells for $3B

by Laura Board in London | Published July 25, 2012 at 12:31 PM

A consortium led by Li Ka-shing's Cheung Kong Infrastructure Holdings Ltd. said Wednesday it had agreed to buy U.K. gas distribution company Wales & West Utilities Ltd. for about £1.96 billion ($3.03 billion) including debt.

Cheung Kong Infrastructure and affiliates are shelling out £645 million for the equity and will assume net debt of about £1.31 billion in a deal that was struck without an auction process.

The selling shareholders are Macquarie Group's Macquarie European Infrastructure Fund 1, MEIF 2 and Macquarie Global Infrastructure Fund II, which hold a combined 50% in Wales & West's holding company, as well as a unit of the Canada Pension Plan Investment Board, AMP Capital Investors Sarl and Industry Funds Management Pty. Ltd.

The acquisition is Cheung Kong's third major U.K. infrastructure deal in the past two years following its £4.7 billion purchase of Northumbrian Water Group plc in October 2011 and its £5.8 billion acquisition of Electricité de France SA's U.K. power networks a year earlier.

Cheung Kong Infrastructure managing director H. L. Kam noted that those two U.K. assets were key drivers of profit in its first half.

"We are pleased to have the opportunity to acquire another high-quality asset, which is poised to extend our growth momentum and generate recurring profit contributions similar to that of our other infrastructure projects," he said in a statement.

MEIF 1 has been a Wales & West investor since 2004, when it led a consortium buying the pipeline operator from the then-National Grid Transco plc for £1.2 billion.

A person familiar with the situation said the sale to the Cheung Kong Infrastructure consortium was a "very good outcome" for investors in the Macquarie funds. The offer "represented a very good opportunity for all three funds to exit at a very attractive price," the person said. Other U.K. portfolio companies of Macquarie's European infrastructure funds include Thames Water Utilities Ltd. and England's M6 toll road.

All Cheung Kong Infrastructure's U.K. deals since 2000 have been consortia purchases. The investor group for Wales & West includes Cheung Kong Infrastructure, Cheung Kong (Holdings) Ltd., led by chairman Ka-Shing and 39%-owned investor Power Assets Holdings Ltd., which will each take 30% of Wales & West. A Li Ka-shing charitable foundation will hold the remaining 10%.

Cheung Kong Infrastructure and Power Assets Holdings already have 88.4% in Northern Gas Networks Ltd., which serves 6.7 million in the north of England, compared with Wales & West's 7.4 million customers in Wales and southwest England.

The Wales & West purchase, if cleared by regulators, means they will own two of the U.K.'s eight gas distribution networks. Cheung Kong Infrastructure expects to close the deal in September and to maintain Wales & West's existing debt structure.

Wales & West's regulated asset value as of March 31 was £1.7 billion. Wales & West, led by CEO Graham Edwards, declined to comment on the transaction beyond a statement stressing it was "business as usual."

Macquarie Capital's Tara Davies and Alex Wotton advised the sellers.

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Tags: Cheung Kong Infrastructure Holdings Ltd. | Li Ka-shing | Macquarie Group | Wales & West Utilities Ltd.

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