May 11 (Bloomberg) -- Alinta Ltd., Australia's biggest energy transmission company, accepted a sweetened A$7.9 billion ($6.5 billion) takeover bid from Babcock & Brown Ltd., rejecting a rival offer from Macquarie Bank Ltd.

Babcock, Australia's second-largest investment bank, and partner Singapore Power Ltd. bid A$16.06 a share, more than A$1 a share above their earlier proposal, Alinta said in a statement today. The offer gives a ``high degree of completion certainty,'' compared with Macquarie's bid, Alinta Chairman John Akehurst said.

Babcock and Singapore Power plan to divide up the utility's nationwide network of gas and power lines, a management business and power plants. Perth-based Alinta said the Babcock proposal gave a clearer valuation than that made by Macquarie, which now faces a second defeat in a week after a failed A$11.1 billion bid for Qantas Airways Ltd.

``It seems Alinta wanted to go with Babcock no matter what Macquarie did,'' said David McDonald, an analyst at Shaw Stockbroking Ltd. in Sydney. ``The new kid on the block may be out-trumping its bigger rival.''

Babcock and Singapore's electricity monopoly revised an existing agreed offer after Macquarie raised an earlier bid that had been rejected by Alinta. The board has ``higher confidence'' in the value of shares in the Babcock and Singapore Power offer, even though Macquarie had improved its offer, Akehurst said.

Under the Babcock and Singapore Power bid, Alinta shareholders have four cash and stock options. Investors can choose to take all stock in three funds managed by Babcock, or all preference shares which may be granted tax relief.

`Good Outcome'

``It looks like a good outcome for Alinta shareholders,'' said Atul Lele, who helps manage $380 million at White Funds Management in Sydney. The buyers have some potential ``upside'' because of a rise in electricity prices, he said.

A limited ``maximum cash'' option will provide shareholders as much as A$4.47 billion in cash. Shareholders who don't make a choice will get a default option of A$8.925 a share in cash with the remainder in stock in Sydney-based Babcock's funds and a distribution from pipeline owner APA Group.

The funds included in the deal are Babcock & Brown Infrastructure Group, Babcock & Brown Wind Partners, and Babcock & Brown Power. Each fund will get some Alinta assets, while Singapore Power will get electricity and gas distribution networks in Victoria and New South Wales states, Alinta's energy asset management business in eastern Australia, gas pipelines in eastern Australia and the ActewAGL networks business.

Singapore Power

Singapore Power will provide the ``vast bulk'' of the cash part of the offer, Phil Green, Babcock & Brown chief executive officer, said on a conference call with analysts and reporters. Singapore Power will offer the assets it gets to SP AusNet, its majority-owned Australian business, Yap Chee Keong, chief financial officer, said on the call.

Macquarie's offer comprised three choices, including A$15.80 in cash, A$15.80 of shares in a new entity, or A$16.60 of shares and units in pipeline owner, APA Group, according to the statement.

Alinta's shares, which resumed trading today after a four day suspension, rose 14 cents, or 0.9 percent, to A$15.39 in Sydney. Macquarie shares dropped A$1.41, or 1.3 percent, to A$88.90. Babcock's stock rose 0.1 percent to A$29.40, while the shares of the three Babcock funds fell.

Alinta's shares have gained 48 percent in the past six months, buoyed by the sale process and the competing bids from the Babcock group and Sydney-based Macquarie.

``Clearly the process the company has pursued has been positive for shareholders,'' said Stephen Yan, a spokesman for Macquarie.

Predictable Returns

Babcock buys pipelines and other assets that provide predictable returns, sells them to investors in fund it then manages for a fee. Singapore Power, which owns 51 percent of SP AusNet, an Australian electricity and gas distributor, is seeking to expand in Australia as the city state's government plans to end its domestic monopoly.

Credit-default swaps based on $10 million of Alinta bonds fell to $45,700 from $47,100 yesterday and as high as $62,500 on May 7, according to Bloomberg data. The five-year contracts, used to speculate on changes in Alinta's ability to repay its debt, decline as perceptions of credit quality improve.

Auction Process

Alinta started an auction process in January after getting a management buyout proposal. The company today agreed to pay Babcock and Singapore Power a A$59 million break fee if it changes its recommendation or the deal falls over. That's up from a A$37.5 million fee agreed after Alinta supported their initial offer on March 30. The transaction is now expected to be complete August 31 after a shareholder vote earlier that month.

There's still a chance the sale won't proceed, meaning Alinta lenders face continuing uncertainty, Standard & Poor's said in an e-mailed statement. ``Notwithstanding the two known external bidding groups, there remains some chance that the company will not be sold,'' Colin Atkin, a Melbourne-based credit analyst, said in the statement.

Alinta is being advised by Carnegie, Wylie & Co. and JPMorgan Chase & Co., while Deutsche Bank AG and UBS AG are advising Babcock & Brown. Singapore Power is being advised by Morgan Stanley. Macquarie was previously Alinta's biggest corporate adviser.

Macquarie and its partners including TPG Inc. fell short of getting shareholder acceptances for 50 percent of Qantas stock by May 4, ending their plan take control of Australia's largest airline.

To contact the reporters on this story: Joyce Moullakis in Sydney at Jmoullakis2@bloomberg.net; Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net.

Last Updated: May 11, 2007 03:18 EDT