Caixin
May 15, 2018 02:38 AM
M&A

EDP Shares Soar After $10.9 Billion Buyout Bid by China Three Gorges

Three Gorges operates the world’ largest hydro-electric power plant, the Three Gorges Dam spanning the Yangtze River. Photo: VCG
Three Gorges operates the world’ largest hydro-electric power plant, the Three Gorges Dam spanning the Yangtze River. Photo: VCG

* The deal would be one of the biggest foreign acquisitions by a Chinese company

* EDP is poised to reject the deal because it undervalues the company, Bloomberg reported

Shares of Portugal’s biggest energy company, Energias de Portugal SA, jumped more than 10% Monday following a 9 billion euro ($10.9 billion) buyout bid by China’s state-owned utility China Three Gorges Corp.

EDP’s share price surged past the Three Gorges takeover offer, adding uncertainty to a deal that would be one of the biggest foreign acquisitions by a Chinese company since China National Chemical's $43 billion deal to buy Swiss agricultural giant Syngenta last year.

EDP, Portugal’s largest company by assets, traded on Euronext as high as 3.50 euros Monday, well above Three Gorges’ offer of 3.26 euros a share. The stock closed at 3.40 euros, up 9.32%.

Three Gorges made an all-cash offer Friday for the 77% of EDP it doesn’t already own. The Chinese power company first invested in EDP in 2011.

The Three Gorges offer represented barely a 5% premium on EDP’s previous closing price. The Chinese company also offered 7.33 euros a share for EDP’s wind power unit, EDP Renovaveis, below the company’s Friday closing price of 7.85 euros.

The Lisbon-based newspaper Expresso reported that EDP’s management was likely to view the offer hostile because of the low price.

Three Gorges argued that the offer represents a premium of more than 10% over EDP’s average share price in the past six months, Expresso reported. Shares of EDP have been climbing since they touched 2.63 euros in February, the lowest level over the past year.

EDP is poised to reject the deal because it undervalues the company, Bloomberg reported Monday citing unidentified sources. The board of EDP may meet as early as this week to discuss the deal, and the company is working with advisers including UBS Group AG on a potential defense, according to Bloomberg.

EDP is Portugal's largest electricity producer, distributor and supplier with businesses in Brazil, Spain, and the U.S. Another Chinese state-owned industrial conglomerate, CNIC, holds a nearly 5% stake in the company. Other shareholders include U.S. financial services company Capital Group, private equity firm Blackrock and Spain’s Oppidum Capital.

Three Gorges operates the world’ largest hydro-electric plant, the Three Gorges Dam spanning the Yangtze River. By the end of 2017, the company had total installed capacity of 70 million kilowatts and accounted 16% of China’s total hydro-electric generating capacity. Three Gorges had total assets of nearly 700 billion yuan ($110 billion) at the end of 2017, according to company’s website.

A successful bid for EDP would gain Three Gorges greater exposure to overseas energy markets.

Overseas media reported that Three Gorges pledged to fully preserve EDP’s autonomy.

Portugal’s Prime Minister Antonio Costa told reporters earlier that the Portuguese government had no objections to the bid.

Contact reporter Han Wei (weihan@caixin.com)


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