EDP jumps above Chinese bid as investors seen demanding more

By BLOOMBERG

LISBON • EDP-Energias de Portugal SA surged the most in a decade to above the bid made by China Three Gorges Corp, an indication the Chinese utility may have to sweeten its offer to gain full control of its affiliate.

Three Gorges is offering €9.1 billion (RM43.06 billion) to buy the stock that it doesn’t already own in EDP, a 4.8% premium to the closing price last Friday of Portugal’s biggest energy company. While the government in Lisbon has indicated it’s comfortable with the offer, the price offers little incentive for shareholders to tender their stock.

“We believe the price offered is too low for Three Gorges to achieve full control of a vehicle that provides, among other things, a strategic footprint into US renewables,” Javier Garrido, an analyst at JPMorgan Chase & Co, said in a note.

“We expect management and minorities to claim a higher price.”

For Three Gorges, which spent two decades building a hydro-power plant spanning China’s Yangtze River, the deal would bolster its efforts to expand abroad and give it deeper access to markets in Europe, the US and Brazil.

China’s biggest renewable energy (RE) developer is already the largest shareholder of EDP with a 23% stake and now is seeking more than 50%.

“Three Gorges is an ambitious company, with expansion already in international hydro, Chinese onshore wind and floating solar, and European offshore wind,” said Angus McCrone, a senior analyst at Bloomberg New Energy Finance in London. “It may have to do better on bid price than the 5% premium so far offered for EDP.”

Shares of EDP rose as much as 12% in Lisbon trading to as much as €3.495 yesterday, above the bid of €3.26 announced last Friday after the close of trading.

Fortnum’s Experience
The low premium offered by Three Gorges echoes the struggle by Fortum Oyj had in winning over investors in its bid for Uniper SE last year.

The Finnish utility offered €8 billion to buy out the remainder of Uniper in September, immediately sending shares of the German power generator above the offer prices.

Uniper’s stock kept rising as electricity prices recovered and at one point were 20% above Fortum’s offer.

At least for now, Fortum has settled for a 47% stake it bought in Uniper from EON SE. Most other shareholders decided to keep their stake.

The transaction would advance a wave of consolidation among Europe’s leading utilities, which are acquiring assets and development skills in renewables as governments across the region crack down on pollution.

EDP is one of Europe’s leading developers of RE, building mainly wind farms and hydro plants. It has expanded in markets including Brazil and the US.

Other utilities such as Enel SpA and Iberdrola SA are unlikely to bid for EDP given the grasp Three Gorges already has, according to Elchin Mammadov, an analyst at Bloomberg Intelligence.

“No other European Union utility is likely to bid for EDP,” Mammadov said. “Enel and Iberdrola have ruled out largescale acquisitions in Europe. They would also try to avoid yet another bidding war in Europe.”

Speculation about a possible takeover of EDP has swirled for months. Portuguese Prime Minister Antonio Costa last month signalled he wouldn’t interfere with any takeover approach for EDP, saying it was a matter for shareholders to decide.

Before the bid was made public last Friday, Costa said he “has no objection” to a possible Three Gorges offer for EDP, according to comments broadcast by television channel SIC Noticias.