Rumours of predatory interest in the UK utility sector has been swirling for a few weeks now with several names mentioned including United Utilities and Severn Trent.
However, the speculation has now focused on one company: International Power, which owns and operates power plants across Europe, the Persian Gulf, the US, Australia, Pakistan, Thailand and Indonesia.
The story, such as it is, is that GDF Suez, the world’s second biggest utility company, is in talks with the French government, its largest shareholder, about launching an offer before the end of the year.
Whether that’s true or not, a deal makes sense and GDF could afford to pay 385p a share, according to analysts at Merrill Lynch.
We have always argued that the fit between GDF (Ex Tractebel) and IPR portfolio was excellent. In the US, both groups are exposed to the same states, in the Middle East both have a strong exposure to IPP projects and in the UK IPR’s generation assets would fit GDF new ambitions to enter the UK power market. Only the Australian and Pakistani assets would not fit with the GDF portfolio in our view.
GDF has the balance sheet to make such a move. Assuming an offer with a 40% premium (385p), the total cost would be £11bn (including debt), or €12bn. Considering EBITDA forecasts of £1.22bn for next year, that would put GDF leverage to 2.5x compared to 2x now. Even with such a big premium and pre synergies we estimate the deal would EPS accretive by about 7% in 2010. We think such a deal makes sense from both a strategic and financial standpoint and see potential operational synergies between the two companies.
And shares in International Power have spiked in early trading on Wednesday.
And Wednesday’s other takeover rumour (HT Bryce) is that Opap of Greece is looking at either William Hill or Ladbrokes.
Related link:
Miners help drag Footsie lower – FT
International Power profits surge – FT