Could the sale of Britain’s biggest electricity distribution network help re-energise infrastructure dealmaking?

The supposedly steady business of buying and running roads, ports, and power grids has had a torrid time. The credit crunch has undermined some big infrastructure players, made it tricky to finance deals, and revealed that demand for some services — like toll roads and airports — is flakier than expected. Asset sales have run aground, instead of commanding the big premiums they would have fetched in the frantic debt-fuelled auctions of yore.

Nonetheless, optimists say the world’s long-term infrastructure needs are enormous. They are also cheered by the record $100 billion or so of funds that Preqin says are currently being raised (albeit slowly). And there may be some chinks of light on the M&A front. As Greg Roumeliotis and I wrote earlier:

“EDF’s possible sale of British or French power networks worth billions of euros suggests infrastructure dealmaking is set to recover after a dismal year for the once-hot asset class.

“The French utility owns Britain’s biggest electricity distribution network and France’s power grid RTE. It has not begun any formal sales process for either, but bankers and investors say advisers are working toward possible sales.

“A successful deal could lift sentiment in the sector, spur similar disposals by rivals, and offer useful pointers on debt availability and bid premiums for infrastructure mergers and acquisitions (M&A).

“The EDF deal is going to be an interesting test case for the market which has been very difficult,” said Martin Nelson-Jones at Freshfields Bruckhaus Deringer in London.”

Read the full story here. See Preqin’s recent report on the sector here.

It is said that all that glitters is not gold. Keep that in mind when considering the bidding war heating up the nuclear power business. France’s EDF has offered $6.5 billion for half of Constellation Energy Group’s nuclear business and some other assets, trumping Warren Buffett’s bid of $4.7 billion for all of Constellation.
 
If plummeting demand for everything from new cars to tin foil could fell BHP’s monster bid for Rio Tinto, why wouldn’t it weigh on demand for energy? While nuclear power has regained some favor as a cheap, relatively clean alternative to nasty fossil fuels, is it really safe to expect consumers to ramp up electric heat this winter, and air conditioning next summer, when they are worried about losing their jobs?
 
And today brings more evidence that the lengthy, torturous bid process BHP endured before walking away from Rio Tinto may have saved it from dealing with a disastrous downturn in demand. Freeport McMoran, which bought Phelps Dodge for $26 billion two years ago, slashed its dividend this morning after raising it only four months ago.  
 
Constellation shares rose nearly 20 percent to over $30 this morning, but that is still well below the value of the EDF bid — $52 a share. Perhaps investors aren’t quite so warm and fuzzy toward nukes after all.

* Australia said it is open to a $5.9 billion merger between Qantas Airways and British Airways as long as it’s not a takeover, sending the Australian carrier’s shares up nearly 10 percent.

* A Japanese unit of Prudential Financial plans to bid for two Japanese life insurers put up for sale by American International Group, people familiar with the matter said.

* Investment funds of Wall Street banks Goldman Sachs and Morgan Stanley and private equity giant Bain Capital plan to invest a combined at least $30 million into a Chinese movie distributor soon, top boss of the distributor Poly Bona told Reuters.

* The Irish government said it would consider Ryanair’s new offer to buy rival airline Aer Lingus, in which the state holds a 25 percent stake, but it will be careful to preserve competition.

* Debt-laden Telecom Italia, Europe’s fifth-biggest telecoms provider, will shed assets worth up to $3.82 billion and cut another 5 percent of its workforce in a bid to slash borrowings and trim costs amid a weak economy.

* Two investors in Irish Continental Group said they were in talks about a possible offer for the company, owner of Irish Ferries, reopening a bidding war between competing shareholders with blocking stakes.

* Georgia has sold the remaining 49 percent of its Black Sea port of Poti to RAK Investment Authority of the United Arab Emirates for $65 million, its deputy minister Vakhtang Lezhava told Reuters.

* Government-owned Nakheel Properties, developer of Dubai’s palm-shaped islands, is not in discussions over the sale of company and has no immediate plans to cut more jobs, the chief executive told Reuters.

* Swedish oil and gas group Lundin Petroleum has agreed to sell its 9.2 percent stake in Revus Energy to Germany’s Wintershall, helping to clear the way for Wintershall’s takeover of Revus.

(Reuters photo: Vincent Kessler)