Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Hong Kong billionaire Li Ka-shing, the investor known locally as Superman, is living up to that moniker with a smart (in several senses) deal.

His CK Infrastructure Holdings Ltd., fresh from a multibillion-dollar takeover of Australia's Duet Group, is in the lead to buy Ista International GmbH, a German metering and energy-management company, according to Reuters. The purchase from CVC Capital Partners for more than 4.5 billion euros ($5.2 billion) would give Li a maker of heat and water meters whose technology helps customers reduce consumption while allowing utilities to gauge usage remotely.

There are several reasons this makes sense now, not least being that Ista's connected devices provide the kind of steady cash flow Li has favored in his global utilities acquisitions.

Utility Value
Of Li Ka-shing's five biggest overseas deals, only the Italian telecom venture isn't strictly in the utilities space
Source: Bloomberg
Note: The Italy telecom venture refers to the merger of CK Hutchison's Italian telecoms business with VimpelCom’s Wind.

The business is sticky: Customers with a smart meter tied to one energy company are unlikely to switch frequently, fearing the devices could lose their "smartness" with a different supplier at the other end, a U.K. government report last year concluded.

And Ista, with sales of 850.4 million euros last year, sits in a growth industry. Almost two-thirds of U.S. households are equipped with smart meters, but the potential for growth in India, China and even on Ista's home turf is huge. The European Union has a target to replace at least 80 percent of electricity meters with smart meters by 2020. That potential helped Toshiba Corp. raise $1.45 billion when the crisis-hit Japanese conglomerate floated its smart-meter unit, Landis+Gyr Group AG, this month in Switzerland's largest IPO since 2006.

Beyond that, the German company would give Li diversification out of the U.K., which remains in the shadow of Brexit. Through CKI and its parent CK Hutchison Holdings Ltd., the Hong Kong billionaire is the U.K.'s biggest foreign investor. Around 41 percent of CKI's revenue came from that country in the first half, while CK Hutchison got 36 percent of its earnings there. The depreciation of the pound and a potential slowing of the British economy are major threats to Li's fortunes if he doesn't branch out.

The timing, too, is fortuitous. The Ista deal is happening just as CKI looks set for a massive windfall: Access to cash from its 39 percent of Power Assets Holdings Ltd., which made a HK$53 billion ($6.8 billion) bounty when it listed its Hong Kong utility business in 2014. (Two years ago CKI, whose acquisition binge piled up debt, failed to buy Power Assets after minority shareholders revolted.)

Power Surge
CKI's net-debt-to-capital levels shot up in the first half of the year
Source: Bloomberg

The Power Assets special dividend, announced last week, translates to HK$6.2 billion in cash for CKI, according to Daiwa Capital Markets analysts, and by lowering the company's gearing, eases the way for further acquisitions.

With those extra funds soon in hand, Li's Ista bid is the happy coincidence of a good deal that leaves room for more. Have money, will travel.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net