Deal or no deal at Intl Power? | FT Alphaville

Deal or no deal at Intl Power?

It is 40 minutes since trading on the London Stock Exchange got under way on Monday morning — and still no statement from either International Power or GDF-Suez on the Sunday Times bid report, reproduced in part below.

FRANCE’s state-controlled power giant GDF Suez has made a takeover approach to International Power, the £5 billion energy group.

The company has appointed Rothschild, BNP Paribas and Goldman Sachs to work on the structuring of a cash-and-share bid. Nomura, the investment bank, is believed to be providing advice to International Power but the company has not yet formally appointed an adviser. It is likely to come under pressure to issue a clarifying statement to the stock exchange in the near future. Both companies declined to comment on their talks.

Given that both will have come under pressure from the Takeover Panel to say something, could the reason for the radio silence be the simple fact that there are no takeover talks at the moment?

The FT’s M&A editor Lina Saigol certainly seems to think so:

(emphasis ours).

GDF-Suez of France and the UK’s International Power are in talks about co-operating outside their home markets on electricity generation.

The two companies have held discussions about creating a partnership involving their foreign energy assets in a deal that could create one of the world’s leading electricity partnerships.

Talks are tentative and there is no firm proposal from GDF-Suez about a potential deal, although the French group is thought to be determined to avoid a deal that would require it to use its cash reserves. Various scenarios are under discussion, which could include asset swaps or share sales. However, people close to the situation said the talks could still break down.

Le Figaro (via Bloomberg) has a similar line:

GDF Suez SA won’t pay any cash as part of its possible accord with International Power Plc, Le Figaro reported, without citing anyone. Both companies declined to comment, according to the newspaper.

Nonetheless, shares in IPR spiked higher in early trading.

That said, there is merit in the idea of partnership between the two companies as Citigroup notes:

Gdf subsidiary Tractabel has a similar business model to IPR. The two companies have a limited overlap in terms of operations, except in the Middle East were they are often in competition.

We believe Gdf Suez is a plausible potential bidder for IPR as its Tractabel subsidiary has a similar business model. Gdf Suez has stated that while it may consider expanding Tractable through acquisition this is not currently a priority.

The assets of Tractabel and IPR would be fairly complementary, in our view. A combination of the two could increase GDFSuez’ non-European capacity by 14GW (net), almost 50% of which is in the US; increase the group’s market share in the UK to c.10% and complement the continental European capacity base by a further 3GW (net).

And Suez could in theory fund a bid in excess of 400p a share, the bank notes.

Given Gdf’s current financial structure we estimate that it could pay up to 650p for IPR and still see the purchase as accretive to EPS. We calculate that a 400p takeover could lift Gdf’s EPS by c.6% in 2011.

All of which, might be providing some support to the share price, where 328p is seen as a key technical level.

Equally, sector watchers can see why GDF would be reluctant to pay 400p a share.

From a equity sales desk note.

GSZ IPR rumours- see a partnership of some type as more likely than t-over. if gsz launched a £4 bid it would be 3.6% earnings dilutive and 0.40 euros per share destructive. net debt/ebitda would go up to 2.9x which may look too high for Mestrallet…paying all/part shares would dillute french state. Strategically however this makes total sense with synergies on commercial development, access to financing and portfolio optimization.

News roundup…. GDF & IPR…sunday times indicates that…1) INTERNATIONAL POWER is under pressure to clarify this week any GDF plan amid mounting spec that the French are about to table a £6Bn GBL-supported bid…2) GDF has appointed several banks to work on a Cash-and-Share offer (GS,BNP,Roth). Any deal 1) “may not necessarily lead to GDF taking control of UK partner” (Bloom)… 2) is unlikely to involve any Cash payment (FIGARO). GDF may sell stakes in ELIA (Belgian high-voltage power-grid operator) & FLUXYS (Belgian natural-gas grid owner) (LIBRE).

But as readers note, some sort of statement is probably in order given that a merger of IPR’s and GDF’s overseas operations would be a material event/deal. However, if a bid is not under discussion it will probably come down to the UK Listing Authority at the FSA to clear this matter up.

Related link:
GDF-Suez dances round International Power – FT