CORPORATE FINANCING NEWS: MERGERS & ACQUISITIONS
By Gordon Platt
China Three Gorges, a state-owned company that operates the world’s largest hydropower project, bought a 21% stake in EDP, Portugal’s largest company and utility.
The Chinese company also purchased a 49% interest in EDP’s renewables assets to grow its global market share in clean energy. EDP’s renewables subsidiary owns Horizon Wind Energy, which builds and operates wind farms throughout North America.
The deals were valued at a total of $6.13 billion and were the first privatizations under a $100 billion bailout agreement between Portugal and the European Central Bank and International Monetary Fund. China Three Gorges won an auction for the EDP stake, beating out Germany’s E.On and Brazil’s Electrobras, with a bid that was at a 53% premium to EDP’s share price.
EDP and China Three Gorges plan to form a strategic partnership in renewableelectricity generation. With the help of Chinese financing, EDP will take the lead in renewable markets in Europe, North America and Brazil, and China Three Gorges will lead development of the Asian market.
There will be additional privatizations under Portugal’s bailout agreement. China’s State Grid International is bidding for shares in REN, the second-largest utility in Portugal, in which the government holds a 50% stake.
ITALIAN POWER DEAL
Meanwhile, French utility EDF, Europe’s largest power generator, agreed to raise its stake in Italian energy company Edison. EDF was seeking to gain full control of Edison, which has a market value of $4.3 billion, to gain access to natural gas resources and markets in the Mediterranean Basin.
EDF agreed to launch a tender offer to acquire the remaining 19.35% stake—effectively raising its stake to 80.7%. The Italian utility was expected to report a loss for the full year, in part because it is locked into expensive long-term gas-supply contracts with Russia.
The deal, announced in December, was the third big takeover by a French company in Italy last year. French dairy group Lactalis won control of rival Parmalat, and luxury goods company LVMH Moet Hennessy Louis Vuitton purchased Bulgari, the Italian jewelry and watchmaker.
The energy and power sector was the most active during 2011, accounting for 19.8% of announced M&A, according to Thomson Reuters. The value of worldwide deals totaled $2.6 trillion last year, a 7% increase over 2010. However, M&A activity in the second half of 2011 fell 24% from the first half of the year, amid volatile equity markets.
Cross-border deals totaled $908 billion last year and accounted for about 35% of overall deals, flat with a year earlier and driven by resources and financial sectors, which accounted for nearly half of announced deal volume.
Companies located in emerging markets accounted for 26% of worldwide announced mergers in 2011, Thomson Reuters found. The total of $667 billion of emerging markets M&A deals last year was down 13.6% from 2010. The most targeted EM nation last year was China, followed by Brazil and Russia.
Goldman Sachs topped the worldwide financial advisory rankings for deals announced last year. Morgan Stanley was second, followed by J.P. Morgan, Credit Suisse, and Bank of America Merrill Lynch.
There will be a greater focus this year on being able to navigate global market conditions, says Martyn Curragh, US transaction services leader with PwC. The hunt for growth remains a top priority for corporations, and PwC says it is continuing to see buyers looking toward the emerging markets, where local economies are in an upward cycle.
If the lending environment eases and access to capital becomes more readily available, PwC expects dealmakers in wait-and-see mode to unleash a wave of pent-up demand.