Centrica PLC (CNA.L): Gas network M&A on the horizon?

According to Inframation (23-Oct), Centrica has submitted an offer for a 17% equity stake in Cadent, along with other bidders including Italgas. None of the companies mentioned have commented on the report. The article states that "one offer was some 20% above the other bids and equivalent to a roughly 1.3x Cadent's RAV of £13.1bn" and further states that existing shareholders have until end-October to decide on pre-emption rights. If the report is accurate, we believe a Cadent stake would be consistent with CNA's search for more stable and predictable earnings. However, we do not believe a minority equity stake in a highly-levered RAB asset, with limited growth, at a premium higher than listed peers (1.3x RAB) would be well-received by the market, especially in the context of its current share price and option to create value via share-buybacks. We also note management's track record of maintaining M&A valuation discipline. Citi maintains a Buy rating with a £2.14 target price (price