Monday, December 28, 2009

CPPIB Joins ADIA to Bid on EDF Energy Assets

Nick Clark of the Independent reports that Abu Dhabi in for EDF asset:

The auction for EDF Energy's electrical distribution business is expected to heat up after news emerged that Abu Dhabi, which has run the slide rule over the asset in the past, has held talks over a potential £5bn joint bid.

The Abu Dhabi Investment Authority, the Gulf state's sovereign wealth fund, is understood to have joined the Canadian Pension Plan in a joint bid for the business, which the French energy group put on the block two months ago. Goldman Sachs and Lexicon Partners are understood to be involved in an advisory capacity to the consortium.

EDF, which is majority owned by the French government, revealed in October that it was considering its "ownership options" for the electricity distribution business in the UK. At the time it said it "regularly receives spontaneous expressions of interest". The group, which hired Barclays Capital, Deutsche Bank and BNP Paribas to oversee the sale, declined to comment.


Eric Lam of the National Post reports CPP eyes joint bid for Europe's EDF Energy:

The Canada Pension Plan Investment Board is planning to make a joint bid for EDF Energy, the giant U.K. electricity distribution network owned by France's Electricité de France, reports said Monday. The deal could be worth US$7.9-billion, the reports said.

The potential deal would be made in partnership with Abu Dhabi's sovereign wealth fund with Goldman Sachs advising the bidders, Dow Jones reported after news of a possible bid appeared on the French website Wansquare.

Calls to the CPPIB were not returned Monday.

The CPPIB has had its eye on EDF Group, the parent of EDF Energy, for a while. The fund has held 104,000 shares in the French company since March.

EDF Group, one of the largest energy companies in Europe, said in October it was looking to reduce its debt by at least 5-billion euros by the end of 2010 by exploring "ownership options" for EDF Energy, which provides electricity to more than 5.5 million people and businesses in London as well as southern and eastern England.

This would not be the CPPIB's first foray into European investments. And if the reports are confirmed, it would appear to be part of its plan to take a more aggressive stance on worldwide infrastructure acquisitions.

Last week, the CPPIB picked up a 50% stake in Scotland's second-largest shopping mall, the Glasgow Silverburn Mall, for about $250-million. This increased the CPPIB's real-estate assets in the United Kingdom to more than $1-billion, the fund told the Financial Post at the time.

Two days after that, unitholders of Livingston International Income Fund approved an amended joint offer the investment board made with Sterling Partners for the trust for about $324.4-million. The pair had initially agreed to a purchase price of about $273-million in October. Livingston is a trust that owns Livingston International Inc., a leading North American customs, transportation and logistics services company.

In November, the CPPIB partnered with TPG Capital to pick up IMS Health, a leading market-intelligence provider for pharmaceutical and health-care businesses, in a deal worth $5.4-billion.

It was also part of a group that purchased a 70% stake in eBay Inc.'s Skype communications unit for about $2.1-billion in cash and debt in the same month.

Meanwhile, the CPPIB and Ontario Teachers' Pension Plan made a joint bid for Australian toll-road company Transurban Group at the end of October worth A$6.77-billion ($6.3-billion) that was ultimately rejected.

In August, the fund committed to joint real-estate and logistics ventures in Brazil and China.

And in June, the CPPIB shelled out about $1.52-billion for Macquarie Communications Infrastructure Group.

The CPPIB, founded by an act of Parliament in 1997, invests pension assets that are not being used to pay the benefits of 17 million Canadians. As of September 2009, the investment board's portfolio was worth $123.8-billion.

CPPIB has been very busy snapping up private market assets. Most of these deals are co-investments with private equity partners. Goldman and Lexicon Partners will rake in huge advisory fees on the EDF Energy Energy deal.

While CPPIB continues its private assets shopping spree, stakeholders need to be made aware of all the gamut of risks. Given it's profile, CPPIB can take on illiquidity risk, but these deals carry other risks that must be appropriately reflected in the benchmarks governing CPPIB's private markets.

Unfortunately, without proper disclosure, we simply do not know all the risks and costs associated with these deals. For example, what are the advisory fees and how will they be paid? Are regulatory and other risks carefully assessed? If it's a co-investment, how will performance be evaluated and attributed?

Large buyout deals capture the big headlines but you need to look at the risks associated with these deals and how these assets will be benchmarked for compensation purposes. These might be good deals but stakeholders need to keep their eye on the ball, making sure the benchmarks reflect the risks associated with these deals.

***UPDATE***

Erik Andersen asks the following question:
Global Infrastructure Partners completed the purchase of Gatwick Airport earlier this month. It was previously reported that the CPPIB was to be a partner in this investment. Has the CPPIB indeed invested with Global and in what amount?

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