Oct. 3 (Bloomberg) -- Henderson Land Development Co., the Hong Kong developer controlled by billionaire Lee Shau-kee, agreed to acquire Henderson Investment Ltd.'s biggest asset after failing in two attempts to buy out the company's shareholders.

Hong Kong's fourth-largest builder by market value will pay HK$42.9 billion ($5.5 billion) in cash and shares for Henderson Investment's 39.06 percent stake in Hong Kong & China Gas Co., the companies said today. The price was 10 percent higher than Henderson Investment's HK$39.3 billion market value before the announcement.

Henderson Land in May spent more than HK$12 billion buying property, hotel and security-service assets from its 68 percent- owned affiliate after minority shareholders refused 2003 and 2006 takeover offers from Lee, Hong Kong's second-richest man. Henderson Investment plans to focus on infrastructure in China, where two toll roads will be the unit's only remaining businesses.

``It is pretty much an alternative way to privatize the company, which they have failed to do a couple of times already,'' said Kitty Chan, a director at Hong Kong-based Cash Asset Management Ltd. ``This would leave very little for Henderson Investment's minority shareholders.''

`Asia's Warren Buffett'

Lee, 79, is Hong Kong's second-richest man behind Cheung Kong Holdings Ltd. Chairman Li Ka-shing, 79, according to Forbes Magazine, which estimated Lee's fortune at $17 billion in March. Local media have referred to him as ``Asia's Warren Buffett'' because of his private investment fund's stock market gains over the past two years.

Henderson Investment shares rose 8.4 percent to HK$13.98 at the end of trading in Hong Kong after a one-day suspension. Henderson Land, also suspended yesterday, fell 3.7 percent to HK$59.40. Before resuming trading, Henderson Investment stock had dropped 23 percent since May 14, when it approved the sale of property and security assets to Henderson Land. Henderson Land's shares have advanced 37 percent this year.

``Whichever way you look at it, Henderson Investment investors don't get a good deal,'' said shareholder activist David Webb. ``If Henderson Investment had put the controlling shareholding in Hong Kong & China Gas up for sale, then it would have been able to get a lot more than it was being offered by its parent.''

Towngas, whose shares have lagged behind Hong Kong's benchmark stock index this year, gained 9 percent to HK$19.72, their biggest one-day gain since 1999. The stock had risen 14 percent this year before being suspended yesterday, compared with the 41 percent gain for the benchmark Hang Seng Index.

Independent Shareholders

Henderson Land is offering HK$3.7 billion in cash and as much as HK$39.2 billion in share-entitlement notes for the stake in Hong Kong & China Gas, also known as Towngas, which is the city's only piped-gas supplier.

Buyout bids can be blocked by 10 percent of independent shareholders, while asset sales need approval from a simple majority.

Henderson Investment will pay dividends to shareholders after the transaction, with investors getting 0.209 Henderson Land shares plus HK$1.21 in cash for each Henderson Investment share they hold, the companies said in a filing to Hong Kong's stock exchange today. The total value of this distribution is HK$14.71, or 13.7 percent higher than the 10-day moving average of Henderson Investment shares, Henderson Land said.

The transaction will result ``in Henderson Investment becoming a publicly listed standalone infrastructure group,'' Henderson Land said today. It will ``unlock value for Henderson Investment's shareholders through realization of the market value of Hong Kong & China Gas interests.''

General Offer

The developer said it won't make a general offer for Towngas after obtaining a waiver from Hong Kong's securities regulator.

Towngas, the city's oldest utility, is competing for a share of China's growing demand for cleaner-burning fuels as its home market leaves little room to expand. The gas distributor, which supplies more than four-fifths of Hong Kong's population, last year acquired a 44 percent stake in Towngas China Co. to expand on the mainland.

Including stakes in Towngas's Chinese projects, the company has 70 projects across 13 Chinese provinces and an area of Beijing, according to its annual report published last month.

The gas supplier last month said first-half profit more than doubled to HK$5.47 billion, from HK$2.51 billion a year earlier, because of a gain from the transfer of projects in China.

To contact the reporter on this story: Theresa Tang in Hong Kong at ttang3@bloomberg.net

Last Updated: October 3, 2007 05:58 EDT