PPL nears deal to buy E.ON's UK grids - source

LONDON/NEW YORK Tue Mar 1, 2011 7:53pm GMT

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LONDON/NEW YORK (Reuters) - U.S. power firm PPL Corp (PPL.N) is close to buying German utility E.ON AG's (EONGn.DE) UK power networks, beating its main rival, Hong Kong billionaire Li Ka-Shing, a person familiar with the matter said.

The person added that a deal, which would leave PPL with about 7.5 million customers in Britain, could be announced this week. PPL beat Li, who was seeking to add the country's second-biggest electricity distribution network to the largest, which he bought last year from EDF of France.

CNBC reported the PPL deal earlier on Tuesday, saying it was worth about $6 billion (3 billion pounds) in cash. It said PPL won because Ofgem, Britain's electricity regulator, was "concerned about creating an anti-competitive landscape."

Two days ago, the Sunday Times reported Li was the frontrunner after his investment arm, Cheung Kong Infrastructure Holdings (1038.HK) (CKI), outbid PPL. But it said his bid "could be tripped up by competition concerns."

Still, the exact nature of any serious competition hurdle was not immediately clear, since networks are viewed as natural monopolies, PPL is already also a network owner in Britain, and Ofgem is not a merger watchdog.

PPL's Western Power Distribution has 2.6 million customers in South West England and South and West Wales.

The sale would be an important milestone for E.ON, which is shedding some 15 billion euros of assets. It would also be a second big deal with PPL, after the latter bought E.ON's Kentucky-based power unit last year for $6.7 billion in cash.

E.ON and PPL declined to comment.

SOVEREIGN WEALTH FUND

E.ON put the UK networks up for sale in December as part of a promise to investors that it would divest assets worth 15 billion euros through to 2013, in order to guarantee minimum dividends while it builds up new markets.

The networks provide electricity to about 5 million homes and businesses in Birmingham and the surrounding Midlands area of England.

The businesses had a combined "regulated asset value" (RAV) of 2.81 billion pounds ($4.58 billion) as of end-March 2010, E.ON said in a recent bond prospectus.

UBS analysts said recently that a sale at 3.7 billion pounds would represent a 17 percent premium to their March 2012 estimates.

E.ON, the world's largest listed utility, also fielded a joint bid from the Canada Pension Plan Investment Board (CPPIB) and Abu Dhabi Investment Authority (ADIA), the emirate's sovereign wealth fund, people familiar with the matter said in January.

Last year, Li used CKI and his other investment arm Hongkong Electric (0006.HK) to buy networks from EDF (EDF.PA) which provide power to London and southeast Britain for 5.8 billion pounds. CKI and HK Electric officials did not immediately respond to a request for comment outside normal Hong Kong business hours.

(Editing by Douwe Miedema and Andrew Callus, Gary Hill)

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