GDF Suez SA, Europe’s biggest utility by market value, agreed to buy the remaining 30 percent of International Power Plc it doesn’t own for 8.4 billion euros ($11 billion) to expand in Asia and Latin America.
The revised bid of 418 pence a share is 7 percent more than an earlier offer of 390 pence that was rejected this month. GDF Suez said it would sell 3 billion euros of assets to finance the takeover. The value of the deal includes convertible bonds.
“This is definitely a good deal for International Power shareholders,” John Musk, an analyst at RBC Capital Markets in London, said in a telephone interview. “It’s a little harder for GDF shareholders to swallow, though I don’t think they’ve overpaid.”
GDF Suez’s difficulties in obtaining higher household rates to cover gas supply costs in France, the prospect of nuclear taxes in Belgium and lower prices have depressed its shares by 31 percent in the past year. The company is building power plants and selling gas from Brazil to South Korea where demand for energy is growing faster than in Europe.
“We want to accelerate our growth in rapidly growing emerging countries,” Chief Executive Officer Gerard Mestrallet said in a Bloomberg television interview. “What is obvious is the fact that growth in Europe in energy and power generation will be limited. At the same time demand in Latin America, the Middle East and Asia is growing very rapidly.”
GDF increased its target for net recurring income to 3.7 billion to 4.2 billion euros from 3.5 billion to 4 billion euros, while maintaining the same level of earnings to debt. The 2012 dividend will also be at least as large as in 2011 if the deal goes through, the company said.
The deal would be the second biggest this year after Glencore International Plc’s offer for Xstrata Plc. It would give GDF Suez complete control over the company it merged some divisions with last year to create the world’s second-largest power producer.
“GDF Suez has made an attractive proposal and the independent International Power directors have concluded it represents a price that fairly reflects the company’s position in international power generation markets and its inherent growth potential,” Neville Simms, chairman of the independent directors of International Power, said in a statement.
International Power rose 3.2 percent to 416.8 pence in London. GDF Suez added 2.9 percent, its steepest gain since January, to 18.475 euros in Paris.
GDF’s bid will be funded from bank facilities and cash, the company said. International Power shareholders would receive cash as well as a final dividend from 2011, Paris-based GDF said today in a statement.
“This is close to our expectations, and we see the offer progressing smoothly to its conclusions,” Angelos Anastasiou, an analyst at Investec Securities, said in a note.
International Power completed a merger of assets with GDF last year, boosting its gross generation capacity to more than 70,000 megawatts in 30 countries. The agreement involved combining International Power divisions with GDF assets in Turkey, the U.K. and outside Europe.
Following today’s deal, which the French utility plans to close in the middle of July, GDF Suez will have a combined production capacity of 132,000 megawatts when power plants under construction are completed, Mestrallet said. Plants being built include dams in Brazil, gas-fired plants in the Middle East and coal generators in Indonesia and Thailand.
The company is in talks with Japanese companies for a long-term import contract for liquefied natural gas and has reached an agreement to develop an LNG terminal on China’s east coast, the CEO said.
The French utility said 6.6 billion euros of asset sales were achieved last year as part of a plan to sell 10 billion euros of assets in the three years through 2013.
The takeover of International Power was staged in two phases to keep debt low enough and avoid jeopardizing the company’s “A” credit ratings, Mestrallet said.
GDF Suez declined to specify which assets will be sold in the next 18 months.
“We will choose assets with limited contribution to the bottom line,” Chief Financial Officer Isabelle Kocher said on an analyst call.
Priority will be given to selling assets in Europe, although there are no plans for any sales in France, Mestrallet said.