Private equity raid on electricity giant fails at last minute

Vampire Kangaroo’s £15bn deal for UKPN collapses: Private equity raid on Britain’s largest electricity distributor fails at last minute

A takeover of Britain’s largest electricity distributor by a private equity-led consortium has collapsed after a last-minute price rise from its current owner.

UK Power Networks (UKPN) maintains electricity cables and power lines across the east and south east of England and London. 

The company transmits electricity to around 8.3m homes and businesses and earns about a quarter of all revenues generated by the sector.

Power moves: UK Power Networks maintains electricity cables and power lines across the east and south east of England and London

UKPN is currently owned by CK Infrastructure (CKI) Holdings, the vehicle of Hong Kong property tycoon Li Ka-shing which bought the firm for £5.5billion in 2010.

CKI had been due to sell the group for £15billion to a consortium of six firms headed by New York-based private equity group KKR and its Australian financial service group Macquarie, headed by Shemara Wikramanayake.

The group is known as the ‘Vampire Kangaroo’ due to its reputation for buying companies, loading them with debt and sucking out money for shareholders.

But the deal fell apart after CKI tried to increase the price tag days before an agreement was due to be signed.

However, the collapse of the deal appeared not to have ruffled any feathers at UKPN.

Chief executive Basil Scarsella said the group’s Hong Kong owners had been ‘excellent and invested £800million plus per year.’

The decision to raise the price came amid a surge in UK inflation, which is running at 9.1 per cent – its highest level in around 40 years.

Shemara Wikramanayake heads Australian financial services group Macquarie, known as the 'Vampire Kangaroo'

Shemara Wikramanayake heads Australian financial services group Macquarie, known as the ‘Vampire Kangaroo’

Alongside five other monopolies that operate the UK’s electrical wiring and pipe networks, UKPN makes all of its money from customer bills, which have soared in recent months as the Russian invasion of Ukraine sent global energy prices skyrocketing.

The windfall from rising bills has drawn attention to the UK’s electricity, gas and water providers as their returns are set by the regulator and increase in line with inflation, which mean they are often considered safe havens by investors. 

Buyers started sniffing around the sector during the pandemic as demand for power and water remained steady during lockdown while leisure and retail firms suffered.

Earlier this year, another consortium led by Macquarie bought a 60 per cent stake in National Grid’s gas transmission business in a £5.8billion deal. 

The acquisition was controversial, with some pointing out Macquarie’s questionable track record of investing in some of Britain’s biggest firms.

Others voiced concerns that the UK was allowing key parts of its infrastructure to fall into the hands of overseas buyers.

In 2021, Macquarie also bought a controlling stake in Southern Water, one of the UK’s largest water monopolies, which provides services to Kent, Sussex, Hampshire and the Isle of Wight, for £1billion. 

But the money-making potential of infrastructure firms could be under threat as regulators move to clamp down on excess profits during the cost of living crunch.

Energy watchdog Ofgem is currently in discussions with network operators including UKPN over how much they will be able to charge customers from next year, meaning profitability could be constrained.

The collapse of the deal to buy UKPN points to a growing trend of mergers and acquisitions falling through because inflation and rising interest rates have made it more costly for firms to take on debt to fuel their purchases.

Last month, the owner of Boots scrapped plans to sell the High Street chemist, blaming an ‘unexpected and dramatic change’ in financial markets.

Walgreens Boots Alliance said it had seen ‘significant interest’ in the 173-year-old chain. But a lack of available funding due to ructions in the credit markets meant none of the potential bidders could make a high enough offer.

Walgreens was thought to have been seeking £7billion for Boots.