EDP Jumps Above Chinese Bid as Investors Seen Demanding More

(Bloomberg) -- EDP-Energias de Portugal SA surged the most in a decade to above the bid made by China Three Gorges Corp., an indication the Chinese utility may have to sweeten its offer to gain full control of its affiliate.

Three Gorges is offering 9.1 billion euros ($10.9 billion) to buy the stock that it doesn’t already own in EDP, a 4.8 percent premium to the closing price on Friday of Portugal’s biggest energy company. While the government in Lisbon has indicated it’s comfortable with the offer, the price offers little incentive for shareholders to tender their stock.

“We believe the price offered is too low for China Three Gorges to achieve full control of a vehicle that provides, among other things, a strategic footprint into U.S. renewables,” Javier Garrido, an analyst at JPMorgan Chase & Co., said in a note. “We expect management and minorities to claim a higher price.”

The offer adds to a wave of investments China has made overseas, both to earn a yield on its cash and to gain expertise in industries ranging from energy to telecomunications and transport. Concern about those deals has been mounting in the U.S. European Union governments have been divided in their response, with Portugal among those most supportive of inward investment.

For Three Gorges, which spent two decades building a hydro-power plant spanning China’s Yangtze River, the deal would bolster its efforts to expand abroad and give it deeper access to markets in Europe, the U.S. and Brazil. China’s biggest renewable-energy developer already is the largest shareholder of EDP with a 23 percent stake and now is seeking more than 50 percent.

“China Three Gorges is an ambitious company, with expansion already in international hydro, Chinese onshore wind and floating solar, and European offshore wind,” said Angus McCrone, a senior analyst at Bloomberg New Energy Finance in London. “It may have to do better on bid price than the 5 percent premium so far offered for EDP.”

Shares of EDP rose as much as 12 percent in Lisbon trading to as much as 3.495 euros, above the bid of 3.26 euros announced on Friday after the close of trading. Shares of EDP’s renewable-energy unit EDP Renovaveis rose 2.2 percent to 8.02 euros. Three Gorges also announced a mandatory bid for that unit, offering 7.33 euros a share, less than the stock’s closing price on Friday.

Fortnum’s Experience

The low premium offered by Three Gorges echoes the struggle by Fortum Oyj had in winning over investors in its bid for Uniper SE last year.

The Finnish utility offered 8 billion euros to buy out the remainder of Uniper in September, immediately sending shares of the German power generator above the offer prices. Uniper’s stock kept rising as electricity prices recovered and at one point were 20 percent above Fortum’s offer. At least for now, Fortum has settled for a 47 percent stake it bought in Uniper from EON SE. Most other shareholders decided to keep their stake.

READ: Fortum Needs Good Dose of Patience to Pursue Bigger Uniper Stake

The transaction would advance a wave of consolidation among Europe’s leading utilities, which are acquiring assets and development skills in renewables as governments across the region crack down on pollution. EDP is one of Europe’s leading developers of renewable energy, building mainly wind farms and hydro plants. It has expanded in markets including Brazil and the U.S.

Other utilities such as Enel SpA and Iberdrola SA are unlikely to bid for EDP given the grasp Three Gorges already has, according to Elchin Mammadov, an analyst at Bloomberg Intelligence.

“No other EU utility is likely to bid for EDP,” Mammadov said. “Enel and Iberdrola have ruled out large-scale acquisitions in Europe. They would also try to avoid yet another bidding war in Europe.”

See also: Portugal Wary of EU Moves to Screen China Investment, Costa Says

Speculation about a possible takeover of EDP has swirled for months. Portuguese Prime Minister Antonio Costa last month signaled he wouldn’t interfere with any takeover approach for EDP, saying it was a matter for shareholders to decide.

Before the bid was made public Friday evening, Costa said he “has no objection” to a possible Three Gorges offer for EDP, according to comments broadcast by television channel SIC Noticias.

--With assistance from Hanna Hoikkala and Alan Crawford

To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net.

To contact the editors responsible for this story: Vidya Root at vroot@bloomberg.net, Reed Landberg, Lars Paulsson

©2018 Bloomberg L.P.