EDF would own 80% in Edison if new offer accepted

October 24, 2011 | Budget & Investment, North Sea & Western Europe

EDF_Energy

French energy giant EDF stepped up the pressure on the Italian shareholders of Edison, pressing them to accept the terms of a new proposal that would give the French power group control of Italy’s second-biggest utility.

EDF committed to buying the shares of Edison’s core Italian shareholders in three years at an unspecified price in a deal that would also involve an exchange of renewable energy assets.

EDF, which jointly controls Edison with a group of Italian investors led by regional utility A2A and its smaller peer Iren, also said it would ask the Italian market watchdog for an exemption from making a mandatory tender for minority shares in Edison as part of its offer. A2A immediately rejected the plan.

“It’s totally unacceptable,” said Graziano Tarantini, the chairman of A2A’s  supervisory board.

EDF and A2A have both expressed dissatisfaction with results at Edison. EDF is keen to take the reins of Edison to dictate its strategy, while A2A is seeking to transform what it sees as a financial stake into industrial assets.

Edison shares plunged on the news, down 6 percent at 0.884 euros by 1523 GMT.

“I am just wondering what EDF is playing at. None of the terms put on the table meet A2A or Iren’s demands,” said an analyst in London, who asked not to be named.

“EDF looks set to get into an unprecedented mess,” the analyst said, adding the risk of a stand-off between EDF and Edison’s Italian shareholders was now real.

EDF and Edison’s Italian investors have until Oct. 31 to come to an agreement on a new shareholding structure.

Beyond this date, Edison could be broken up and a competitive bid for its assets follow, unless the parties agree to extend negotiations for a third time.

Under its new proposal, EDF would buy Edison shares from core Italian shareholders at a price “based on the EBITDA multiple of a sample of comparable listed companies” – contradicting Italian newspaper reports that EDF was ready to offer a put option of between 1.15 and 1.30 euros per Edison share.

The Italian investors, which originally bought the Edison shares at a price of around 1.5 euros each, would have to book a substantial loss if they sold at current market prices.

EDF said this put option would allow Italian partners to benefit from restructuring at the utility.

EDF also offered to grant A2A and Iren a call option to buy the hydro power generation facility in Mese at fair market value in three years, depriving Italian shareholders of immediate access to Edison’s prized renewable energy assets.

“Maybe some market speculators were disappointed that we did not offer 1.30 or 1.50 euros so they could make a quick profit. Our goal was to put an industrial deal on the table,” EDF Finance Director Thomas Piquemal told a call for reporters.

“I am confident we will come to an agreement around this proposal,” he said, adding EDF would only agree to extend negotiations beyond Oct. 31 if it had the certainty that a deal was within reach.

Asked why EDF would ask for an exemption from making a compulsory bid for minority shareholders of Edison, Piquemal said this was because EDF’s current stake of around 50 percent would remain unchanged for the next three years.

“Our goal is to be at 50 percent of the capital, roughly our current holding, with the operating control of the company, but our goal is certainly not to be at 100 percent,” he added.

An analyst in Paris said EDF was right to play hard ball as Edison’s shareholders had no one else to turn to cash in on their assets, but the London analyst said this was a dangerous strategy for the French group, which is vying to build its presence  in Italy and its gas assets through a deal on Edison.

“EDF runs the risk of Edison being dismantled, and if they really want to get out of Edison, there will be no one to buy their assets. Also, the group will not seriously consider staying in Italy after angering just about every one there.”