In Por­tu­gal, trust in China is the art of the deal

Stabroek News Sunday - - WORLD NEWS -

LIS­BON, (Reuters) - Util­ity com­pany EDP may balk at the mea­gre 5 per­cent pre­mium of­fered for its shares by China Three Gorges (CTG) but the bat­tle for Por­tu­gal’s big­gest busi­ness has largely played out al­ready.

To some it looks like a low­ball bid, but Por­tu­gal has wel­comed the of­fer be­cause it con­sid­ers the Chi­nese firm’s pledge to keep EDP-En­er­gias de Por­tu­gal in­tact more im­por­tant than the price and it wants closer ties with a coun­try that has ploughed bil­lions into its econ­omy.

That open­ness to in­vest­ment from China, in­clud­ing in strate­gic sec­tors like en­ergy, stands out amid sus­pi­cions else­where in Europe about Chi­nese ac­qui­si­tions.

The Chi­nese state-owned hy­dropower gi­ant be­came EDP’s big­gest share­holder in 2011. So when re­ports of merger talks be­tween EDP and Span­ish ri­val Gas Nat­u­ral emerged in July 2017, it beat a path to the Lis­bon gov­ern­ment’s door.

A Gas Nat­u­ral takeover would have threat­ened CTG’s am­bi­tion to use EDP to di­ver­sify be­yond China, while Por­tu­gal’s So­cial­ist gov­ern­ment feared a Euro­pean ri­val could break up the busi­ness, an in­dus­try source fa­mil­iar with the talks and a po­lit­i­cal source with knowl­edge of the gov­ern­ment’s po­si­tion said.

“Nearly a year ago, Gas Nat­u­ral ap­proached EDP and that was the time when CTG started to think about this move,” said one in­dus­try source with knowl­edge of CTG’s takeover bid.

“If CTG has been a part­ner for more than six years, has in­vested in the com­pany, in a strate­gic sec­tor for Por­tu­gal, and has good re­la­tions with the gov­ern­ment, it is nat­u­ral that they talk,” the source said.

EDP and Gas Nat­u­ral de­nied be­ing in talks last year. But just over a month af­ter the re­ports, Por­tu­gal added a clause to its takeover laws al­low­ing share­hold­ers with the same ul­ti­mate owner to com­bine all their vot­ing rights.

Pre­vi­ously, the votes would have been capped at 25 per­cent, what­ever the size of their com­bined hold­ings.

That could be cru­cial as CTG’s bid for EDP pro­gresses. While it owns 23.3 per­cent, an­other Chi­nese sta­te­owned com­pany, CNIC, holds 5 per­cent, most re­cently buy­ing 2 per­cent at the end of 2017.

CTG in China and a spokesman for the Por­tuguese gov­ern­ment did not re­spond to re­quests for com­ment.

CTG first bought 21.4 per­cent of EDP in De­cem­ber 2011 for 2.7 bil­lion eu­ros ($3.2 bil­lion), step­ping in when Por­tu­gal pri­va­tised the com­pany to raise funds af­ter an in­ter­na­tional bailout to sta­bilise gov­ern­ment fi­nances.

The Chi­nese com­pany has since in­vested some 2 bil­lion eu­ros in power ven­tures with EDP, which has a port­fo­lio of re­new­able en­ergy as­sets such as wind, hy­dro and so­lar power in coun­tries such as Brazil, the United States, France, Italy and Poland.

In April this year, there were re­ports of in­ter­est in EDP from an­other Euro­pean util­ity, this time Engie. The French com­pany de­clined to com­ment while EDP said at the time that no con­tacts had been es­tab­lished.

A few weeks later, CTG launched its takeover bid. It of­fered 9.07 bil­lion eu­ros ($10.7 bil­lion) for the rest of EDP on May 11, a pre­mium of just 5 per­cent above the util­ity com­pany’s share price be­fore the of­fer be­came pub­lic.

EDP de­scribed the of­fer as too low, but left the door open to ne­go­ti­a­tions. Some an­a­lysts ex­pect EDP to ask for a 20 to 30 per­cent pre­mium but no other bid­der has yet emerged and EDP shares are trad­ing less than 5 per­cent above the of­fer price.

“It was pre­dictable and there have al­ready been con­ver­sa­tions with the gov­ern­ment for a long time,” said an in­dus­try source close to EDP who has knowl­edge of the talks.

“This is purely po­lit­i­cal,” the source said. “CTG knew that there were many Euro­pean com­pa­nies look­ing at EDP, which is medium-sized and has in­ter­est­ing as­sets.”

In its bid an­nounce­ment, CTG made clear it saw EDP’s long-term fu­ture as a Por­tuguese com­pany strength­ened by CTG’s as­sets, with a large free float of shares that could po­ten­tially be used as a spring­board for Euro­pean ex­pan­sion.

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