Hong Kong tycoon Li Ka-shing agreed to buy British utility Northumbrian Water Group for 2.41 billion pounds ($3.92 billion) in the biggest takeover this year of a British-listed company.

Li has been expanding his business empire by buying into regulated infrastructure and utilities assets in developed countries, especially Britain -- which is open to foreign ownership of its infrastructure assets.

Shares of Li Ka-shing's Cheung Kong Infrastructure Holdings (CKI) <1038.HK>, which is leading the consortium that is buying Northumbrian Water, rose 3 percent to HK$46.15, its record closing high, after the announcement.

The stock has gained about 30 percent so far this year as investors cheered the company's acquisition strategy and expected more buys of regulated-utilities assets to aid its long-term growth.

Northumbrian Water is one of the 10 regulated water and sewerage businesses in England and Wales.

CKI is selling its Cambridge Water unit to a division of HSBC <0005.HK>, in an effort to avoid referral to the Competition Commission under the water sector's stringent merger rules.

Analysts say regulatory hurdles are now unlikely to crop up for the bid because CKI sold Cambridge Water.

CKI on Tuesday said Northumbrian directors confirmed they intend to recommend unanimously that Northumbrian Water shareholders vote in favor of the scheme.

With the disposal of Cambridge Water, the main obstacle to the rapid conclusion of the bid has been removed, Investec analyst Angelos Anastasiou said.

This (the CKI bid) is very much as expected, and should be reasonably positive for the rest of the Waters, said Anastasiou, referring to other London-listed water utilities.

News of the bid sparked gains in Northumbrian's peers Severn Trent , Pennon Group

and United Utilities , with all three rising more than 1 percent in London.

The Northumbrian deal, if completed, would be CKI's third investment in 18 months in the UK. The deal will boost the size of CKI's portfolio of gas, water and electricity in the UK to HK$65 billion from HK$40 billion currently.

CKI has already invested in unlisted British water companies including Southern Water, in which it has a 4.75 percent stake.

NORTHUMBRIAN PREMIUM

CKI said the consortium is offering to buy Northumbrian at 465 pence per share. Northumbrian shares, which closed at 449.4 pence on Monday, jumped more than 4 percent on the news.

Northumbrian said its shareholders will also get a 9.57 pence per share final dividend, taking the total bid to about 475 pence per share. Analysts had previously said Northumbrian's board would agree to sell at those levels.

It's in line with their (CKI's) practices and what they are comfortable with. In terms of consistency to their strategy, it appears to be fine to me. Relative to similar sort of deals, the (acquisition) premium is also within that range, said Lorraine Tan, analyst at Standard & Poor's Equity Research, Asia.

I think it is a fair deal. I think the bottom line impact to CKI holdings won't be as much, as large as the UK power networks deal. I wouldn't expect the same sort of uptick to its share price that we saw with that particular deal, Tan added.

Last year, CKI and Li's other investment arm, Power Asset Holdings <0006.HK>, agreed to buy the British electricity distribution networks of France's EDF , which provide power to London and southeast Britain, for 5.8 billion pounds.

LI KA-SHING STRATEGY

Li is widely known for his savvy deal making, which earned him the nickname of superman in local media.

A high-school drop out, the spry, bespectacled Li went on to build a plastic flower business into a global empire with 26,000 employees in 55 countries.

The CKI bid is backed by shareholders who own 33.6 percent of Northumbrian's outstanding stock, including the company's biggest shareholder, Ontario Teachers' Pension Plan, which owns about 27 percent of Northumbrian.

Northumbrian said Ontario Teachers' Pension Plan Board has also undertaken not to participate in any bid for Northumbrian.

The acquiring consortium, called UK Water, is indirectly wholly owned by CKI, Li Ka-shing's Cheung Kong Holdings <0001.HK> and Li Ka Shing Foundation Ltd (LKSFL), a charitable foundation established by Li.

CKI and CKH each holds a 40 percent stake in UK Water, with LKSFL holding the remaining 20 percent.

CKI is controlled by Li's ports-to-telecoms conglomerate Hutchison Whampoa Ltd <0013.HK>, which in turn is controlled by Cheung Kong Holdings.

CKI said it would contribute 879.5 million pounds to the Northumbrian acquisition, to be funded with internal resources and a bridge loan of 600 million pounds.

After the acquisition, the net debt-to-equity ratio of CKI will rise to 19 percent from zero now.

The Northumbrian deal carries a break fee of 24.1 million pounds for Northumbrian, the statement said.

For the year ended March 31, Northumbrian Water reported net profit after taxation and extraordinary items of 178.4 million pounds, versus 122.9 million pounds the previous year.

Net assets of Northumbrian Water as at March 31 were 475.9 million pounds, up from 313.9 million pounds a year earlier.

($1 = 0.615 British Pounds)

(Additional reporting by Lee Chyenyee; Writing by Charlie Zhu; Editing by Vinu Pilakkott)

Water