A £15bn takeover deal to buy UK Power Networks, Britain’s largest electricity distributor, has reportedly collapsed after surging inflation sparked a last-minute price rise by its Hong Kong owner.
Billionaire tycoon Li Ka-shing’s CK Infrastructure Holdings (CKI), which bought the firm for £5.5bn in 2010, tried to lift the sale price just two days before an agreement was due to be signed last month with a consortium led by KKR and Australia’s Macquarie.
The six-member consortium decided the asking price was too high and pulled out of the discussions, the Financial Times reported, citing two people close to the deal.
CKI’s decision was the result of the sharp rise in UK inflation, the people said, with currency movements also a factor. UK inflation is currently running at 9.1% its highest level in almost 40 years.
“It was unusual for the price to be changed at such short notice and after a year of due diligence,” one person close to the bidders told the newspaper. “The price expectations from the seller massively changed so we exercised cost discipline and walked away.”
Privatised infrastructure assets in the UK – including the electricity, gas and water networks – benefit from rising inflation because their returns are set by the regulator and linked to either the consumer price index or the retail prices index.
UK Power Networks is the largest electricity distribution network operator in the UK, transmitting to 8.3 million homes and businesses in the south-east and East Anglia, and earning about a quarter of all revenues in the sector.
It is one of six monopoly network companies that operate Britain’s pipes and wires, and derive all their revenues from customer bills, which are soaring as a result of higher gas prices linked to Russia’s invasion of Ukraine.
The failed sale took place amid talks between Ofgem and the UK electricity distribution network operators, including UKPN, over how much they will be allowed to charge customers for the five years starting in 2023.
National Grid agreed last year to buy PPL Corp’s UK electricity distribution business for £7.8bn, while Macquarie bought a majority stake in Southern Water, one of the largest water monopolies, for £1bn.
A consortium led by Macquarie also bought a 60 per cent stake this year in National Grid’s UK gas transmission business.
Macquarie and KKR declined to comment. CKI did not respond to requests for comment.
Reporting by Frank Prenesti at Sharecast.com
