Companies that already own network assets in the UK and the US as well as international financial investors have been identified as the most likely buyers for Western Power Distribution.
Following two decades of ownership, the Pennsylvania-based PPL Corporation revealed earlier this week that it is putting the electricity distribution network up for sale to allow it to focus on its core American business.
Analysts at investment firm Jefferies said the potential buyers for the company, which serves almost eight million customers across the South West, the Midlands and South Wales, include Berkshire Hathaway, the owner of Northern Powergrid; Iberdrola, the owner of Scottish Power and its network businesses; and National Grid.
All three companies also own US utility assets, which PPL has said it will accept for part of the payment, while both Berkshire Hathaway and Iberdrola own distribution network operators with adjacent license areas to WPD, suggesting the potential for cost synergies.
However, in the case of National Grid, analysts said its shareholders may be reluctant to let go of its US assets, which are seen as important to the company’s growth. They also questioned whether the group would have access to sufficient financing to cover the cash element of the transaction, which is still expected to be substantial given WPD’s desire to reduce its expensive debts as part of the deal.
They said there is also a “long list” of international financial investors which may be interested in buying WPD. These include the Hong Kong-based Cheung Kong Group, the Australian bank Macquarie, the investment fund GLIL Infrastructure and the Abu Dhabi Investment Authority, which respectively own stakes in UK Power Networks, Cadent, Anglian Water and SGN.
Based on past transactions, the analysts suggested PPL can expect to receive a 20 to 50 per cent premium over WPD’s regulatory asset value (RAV). Taking a multiple of 1.3 times, they said its current RAV of £8 billion would therefore imply a purchase value of £10.4 billion.