When a Half-Deal Is Better Than No Deal
The pressure on European utilities to consolidate seems to be so great that even a half-deal will suffice for some buyers.
Finnish utility Fortum Oyj was rebuffed earlier this year in its attempt to do a full takeover of fossil-fuel power generator Uniper. Undeterred, it's now trying to buy a near-50 percent stake. The move is tactically clever on Fortum's part, but it puts Uniper's ordinary shareholders in a bind.
Uniper was spun out of German parent EON SE last year and is just acclimatizing to life as a stand-alone company. EON is a willing seller of its remaining 47 percent stake and Fortum is a keen buyer. The pair are talking about a price of 3.8 billion euros ($4.56 billion), or 22 euros per share.
If a deal gets done, Fortum will make the same offer to Uniper's other shareholders. Should that second offer fail, Fortum would at least have prevented anyone else taking control of Uniper. Plus, it would have the option to come back another day with a new offer to buy the rest.
Fortum's stock has gained on the plan. That's despite the fact that utilities mergers carry less cost-cutting potential than other industrial deals, and this deal would mark a shift back to "old" power. Still, a combination of the two companies does carry some logic. They have complementary assets in some countries, notably Russia and Sweden, which might afford scope for more efficient utilization. And there would be the administrative savings that come with scale and having only one head office.
All in all, the move isn't obviously value destructive and gives Fortum a big bargaining chip as the sector consolidates. On a full deal, Fortum's leverage would probably be inside 4 times Ebitda next year. And if it has to bide its time to get full control, Fortum would get some compensation: Uniper's dividends are forecast to improve from around 70 euro cents a share this year to over 1.50 euros per share in 2020. That would lift the yield on the Finnish utility's investment to nearly 7 percent.
EON's shareholders can now look forward to the likely prospect of a big injection of cash to cut its own debt pile. It's harder to see that this is unambiguously good news for Uniper's minority shareholders. The Uniper stock price has risen above the level of the Fortum offer, anticipating either a counterbid or a new, higher offer from Fortum to buy out independent shareholders at a later date. Neither are guaranteed.
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