Iberdrola SA bid 2.5 billion euros ($3.5 billion) to buy out minority investors in its Renovables unit after they lost money since it took the world’s largest owner of wind parks public in 2007.
The Bilbao-based utility will pay 0.499 share for each in its publicly traded Iberdrola Renovables SA unit, a 10 percent premium to yesterday’s closing price, the parent company said today in a regulatory filing.
Spain’s largest power company is taking advantage of a 48 percent decline in its unit since the initial public offer to consolidate ownership at a cheap price, said Francisco Salvador, a strategist at Madrid-based FGA-MG Valores.
“The level at which it was trading was absurd,” Salvador said in an interview. “Since the market wasn’t recognizing its value, the deal has a certain logic.”
Clean-power generators have lost attraction after Spain rewrote subsidy laws for existing plants and rival installations burning fossil fuels in the U.S. were boosted by increased shale gas supplies. Renovables last week slashed its planned investments in new capacity globally by more than one-third through 2012 to preserve its profit margins.
Iberdrola cited shifts in energy prices, slower progress in regulation and reduced investment opportunities in Spain and the U.S. as the reasons for the deal in a presentation filed with the stock market regulator. The transaction will dilute earnings per share by 1.5 percent next year and will boost profit growth, it said.
The company said it will support an extraordinary dividend of 40 percent of the 2.978 euros value of the shares implied by the deal. Should Renovables directors opt for the full dividend payment, Iberdrola will pay 0.299 of its own shares and may raise 246.6 million euros of new capital to finance the deal.
Iberdrola sold Renovables shares to investors for 5.30 euros in a 2007 initial public offering, and the stock changed hands 2.74 euros before trading was suspended today. That gave the company a market capitalization 1 percent less than the book value of its business, according to Bloomberg data.
“Iberdrola Renovables was undervalued, but the strategy employed to depend alone on parent company funding was not one in which the market was confident,” said Rupesh Madlani, a renewable energy analyst at Barclays Capital in London.