Sparks fly in US power rush

RIVAL financial powerhouses Macquarie Bank and Babcock & Brown are set to go head-to-head in the huge North American energy market as an increasing number of electricity generation and supply businesses come up for sale.
Natural gas power plants and the electricity distribution networks connected with them have been specially targeted by both investment groups after the two separately identified the US as a region for major expansion.
Their respective moves across North America are likely to see them engaged in constant bidding wars for assets - mirroring their recent no-holds-barred battle for the West Australian energy producer Alinta.
Babcock & Brown won that round with an $8 billion bid despite two attempts by Macquarie to win over the company.
The Alinta deal is due to be completed by B&B by the end of August. This will see its various generation and transmission businesses carved up between the bank and its power, wind and infrastructure funds.
Macquarie's likely retaliation will come in North America, where it is closely pursuing several acquisition projects through its small, Los Angeles-based Macquarie Cook Energy (MCE) business, which the bank acquired just over 18 months ago.
Originally created as an energy trading and marketing operation to service US gas producers and utility companies, Macquarie indicated yesterday that it would end up directly owning and controlling natural gas businesses. It has quietly been hiring a team of energy specialists to identify assets to target.
Investors were told by the head of Macquarie's treasury division, Andrew Downe, that such a step by MCE would provide the bank and its various funds with a way into other power generation, transmission and distribution businesses.
This could see the bank establishing at least one power fund to mirror the infrastructure trusts that Macquarie has successfully used in Australia, Asia, Europe and North America to buy a whole range of assets such as toll roads, airports, real estate, water supply and transport operations.
B&B has already flagged its interest in the US power market by trying to take out Montana energy supplier NorthWestern with a $3 billion bid.
However, local regulators recently blocked a deal that would have given B&B's infrastructure fund access to 675,000 customers in the region.
That setback has not stopped the bank from planning to establish an unlisted fund that would own oil, gas and other energy source production and distribution businesses. The details of both groups' North American plans were outlined in separate presentations to a financial services conference held in Sydney yesterday by investment bank UBS.
The two banks have billions of dollars at their disposal to acquire power and energy assets after successive fund-raising efforts in America and Europe.
B&B's chief financial officer, Michael Larkin, told investors and analysts that the investment firm's plan was to "establish a more significant presence in its core activities" in North America, away from its main focus of operating leasing.
Market watchers expect the two groups to announce a series of purchases over the coming months as they seek to maintain their respective phenomenal profit growth of the last five years.
Macquarie recently reported a 60 per cent increase in annual net earnings to $1.46 billion for 2006-07 while B&B expects its current year profits to jump by a third to $550 million.