A bidding war for $2bn-valued Eletropaulo between Enel and Iberdrola has seen the former come out on top.
The months-long, hotly contested competition saw sealed bids offered late on Wednesday, with Enel’s $12.14 offer higher than its Spanish rival. There had been numerous offers and counter offers up to this juncture and a war of words between the two companies played out in the media.
At one point, Enel released a letter to Brazilian newspapers, complaining about a deal that would give preference to Iberdrola in a share offering that was later canceled by Eletropaulo. Iberdrola went to the European Commission, alleging that Enel was using its status as a government-controlled utility to gain a competitive advantage. Energisa revoked its offer for Eletropaulo May 4.
According to analysts, the intensity of the bidding process has served to over-inflate the price of the deal.
Iberdrola’s third offer was 32.1 reais per Eletropaulo share on April 26, a 90 per cent premium to the share price on March 27, before the bidding war started.
Enel reacted within hours by hiking its own bid to 32.2 reais.
With net debt of 4.2 billion reais, the Brazilian company has an enterprise value of 9.6 billion reais at these prices. That is 8.7 times analysts’ expectations for EBITDA in 2018, compared with an average multiple of 6.6 in a sector where peers tend to have a better profitability.
Shareholders will now weigh Enel’s bid on June 4. Each must individually decide whether to take the offer. A majority must for the deal to happen. Before the sealed bids were opened, Eletropaulo indicated in a regulatory filing that its board supported Enel’s proposal, which was the highest offer available on May 28.
“The prize of this bidding war was particularly lucrative; 7 million customers and title of the largest operator in the country, consequently allowing the winner to get a better foothold on the Brazilian utility market. With such a worthwhile and potentially profitable prize, it is hardly surprising that the bidders were prepared to go to war over this one,” Fiona Cincotta, Senior Market Analyst at City Index told Power Engineering International.
“The utility business model is changing. Generally speaking we are seeing a move away from the traditional model of vertically integrated energy companies. This move by Italy’s Enel and Spain’s Iberdrola shows a desire to look towards a horizontal integration model as the way of survival. Yet this is not the new norm either, by and large we are seeing utility firms being broken up and specialising in an attempt to survive, leaving behind this “do everything” model.”