Babcock in big US utility deal

Babcock & Brown Infrastructure Group, a fund run by Australia's second-biggest investment bank, has agreed to buy US utility NorthWestern for US$2.2 billion ($3.5 billion) and will acquire rail assets in West Australia.

The US$37-per-share cash offer for Northwestern, which provides power and gas across Montana, South Dakota and Nebraska, is a 15 per cent premium to its closing share price, the fund said yesterday.

The Sydney-based owner of ports and utilities will also purchase 51 per cent of West Australia's rail network for A$435.3 million ($517 million).

Australian Railroad Group has 10,000km of track mostly in Western Australia, 200 locomotives and 3000 wagons. In February, Babcock & Brown and Queensland Rail bought the company from Perth-based Wesfarmers and Greenwich, Connecticut's Genesee & Wyoming.

Managing director Phil Green's Babcock & Brown is emulating the strategy of rival Macquarie Bank, which bundles monopoly, cash-generating businesses such as rail networks into funds and sells them to investors to earn fees.

Buying NorthWestern will increase the percentage of assets the infrastructure fund has in the US to 39 per cent, from 3 per cent.

The infrastructure fund, whose shares trade on the Australian Stock Exchange, tripled in size by buying A$3.2 billion of assets including New Zealand's Powerco in the year to June 30 last year. Buying NorthWestern gives it a base to expand in the world's largest economy through takeovers, and tap rising pipeline demand from industries such as ethanol producers.

Sydney-based investment bank Babcock & Brown owns 7.5 per cent of the infrastructure fund. The bank, which has a market value of A$4.4 billion, has spent at least A$2.1 billion buying real estate and rail assets in Europe and Asia in the past 18 months to bundle the assets into specialist investment funds.

This month, the bank proposed buying Eircom, Ireland's biggest telephone company, for €2.36 billion ($4.67 billion) to expand in the fastest-growing economy in the 12 nations sharing the euro currency.

Babcock & Brown Infrastructure chief executive Steve Boulton said yesterday that buying NorthWestern and the Australian rail assets will enable him to increase dividends to at least A6.75c a share for the six months ending June 30, 23 per cent more than last year.

The fund will use existing cash, debt and the sale of as much as A$810 million in new stock over the next nine to 12 months to pay for the acquisitions, according to the statement.

NorthWestern last year rebuffed a US$1.25 billion offer from Black Hills as well as an offer from some Montana municipalities.

- BLOOMBERG