Li Ka-shing Doubles U.K. Gas Networks in $1 Billion Deal

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Cheung Kong Chairman Li Ka-shing
Li Ka-shing, chairman of Hutchison Whampoa Ltd. and Cheung Kong (Holdings) Ltd. Photographer: Jerome Favre/Bloomberg

Hong Kong’s richest man Li Ka-shing agreed to pay 645 million pounds ($1 billion) cash for Wales & West Utilities Ltd. to almost double the size of the gas transmission businesses his companies control in the U.K.

Li-controlled Cheung Kong Holdings Ltd., Cheung Kong Infrastructure Holdings Ltd., Power Assets Holdings Ltd. and LKSFL, a charity established by the 83-year old, agreed to buy the company that is owned by Macquarie Group Ltd. funds and other investors, they said today in a joint filing.

“The price tag looks reasonable given the target company’s large-scale operations,” said Evan Li, a Hong Kong-based utility analyst at Standard Chartered Plc. “Adding utility assets globally is Cheung Kong Infrastructure’s development strategy and they may buy more down the road.”

Buying Wales & West will give Li control of pipelines covering a quarter of the U.K.’s population as he steps up acquisitions in Europe following declines in valuations on concern the global economy will slow further. He led groups that acquired Northumbrian Water Group Plc for $7.5 billion including debt last year and Electricite de France SA’s U.K. power networks for 5.8 billion pounds in 2010.

Cheung Kong Holdings, chaired and 39 percent-owned by Li, declined 1.9 percent to HK$97.15 at 2:54 p.m. in Hong Kong compared with a 0.8 percent drop in the benchmark Hang Seng Index. Power Assets, 38-percent owned by Cheung Kong Infrastructure, dropped 2.2 percent.

Deal Valuation

Li’s group is paying 5.33 times Wales & West’s earnings before interest and tax compared with the median of 15.97 times, according to data compiled by Bloomberg based on 10 comparable deals.

Wales & West shareholders include Macquarie European Infrastructure Fund LP, Macquarie Global Infrastructure Fund II, Canada Pension Plan Investment Board, IFM Global Infrastructure Fund and AMP Capital.

The utility, which was sold to a group of funds led by Macquarie European Infrastructure Fund for 1.2 billion pounds in 2004, manages gas transportation assets, gas distribution and meter work services through Wales and the southwest of England, according to the statement. The target company had a loss of 63.1 million pounds in the year ended March 31, 2012.

The loss was derived using U.K. accounting standards and wouldn’t have occurred under international accounting standards, Cheung Kong Infrastructure Managing Director Kam Hing Lam said today at a press conference in Hong Kong.

Deal Appetite

“This project should be able to bring us the similar return from the northern gas project we bought earlier, which has had double digit return over the years,” Kam said. The company is looking for more acquisition opportunities, he said.

Each unit in the bidding group could pay as much as 108.6 million pounds for the acquisition and may pay as much as 95.4 million pounds to cover the target company’s loans, according to the filing.

Cheung Kong Infrastructure and Power Assets already controls 37,000 kilometers (23,000 miles) of gas transmission pipelines in the U.K. through Leeds-based Northern Gas Network. Buying Wales & West will add 35,000 kilometers of gas pipelines and access to a population of 7.4 million people, according to Wales & West’s website. Cheung Kong and its partners paid 1.4 billion pounds for Northern Gas in 2004.


Li’s wealth is valued at $23.3 billion, according to the Bloomberg Billionaires index that is calculated daily. Nicknamed “superman” by the local media for his investing prowess, Li opened a plastic flower factory after World War II and built his fortune investing in Hong Kong real estate in 1967 after riots from China’s Cultural Revolution depressed prices.

He forecast in 2007 that China’s stock-market bubble would burst and in 2009 predicted a rally in Hong Kong home prices. The Shanghai Composite Index lost 65 percent in 2008, the most among the world’s 10 biggest stock markets.

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