GDF in £6bn swoop for International Power

City A.M. Reporter
French utility GDF Suez offered £6bn ($9.5bn) for the 30 per cent of British electricity producer International Power (IPR.L) it does not already own, seeking to integrate the two companies more closely.

The announcement came as German utilities E.ON and RWE said they would no longer build new nuclear power stations in Britain, raising doubts over the UK government's push for a new fleet of atomic plants.

International Power (IPR) said that GDF's indicative approach at 390 pence per share valued it overall at £19.9bn.

GDF said a full merger would enable IPR to grow more quickly by increasing its presence in fast-growing emerging markets and enhancing its access to capital.

Analysts also said the deal made good strategic sense given IPR's strong growth prospects.

"We have previously highlighted that it would make financial sense for GDF SUEZ to buy out either of its listed minorities, International Power or Suez Environnement (SEVI.PA)," Goldman Sachs analyst Andrew Mead said. "On our estimates GDF SUEZ has balance-sheet capacity to buy the minorities for cash."

The analyst said International Power's faster earnings per share growth over the medium term would lift GDF's estimated growth rate to 12 per cent, compounded annually between 2011 to 2015, from nine per cent.

The move on IPR follows market speculation in recent months that the French utility was set to table an offer for the remaining shares.

BofA Merrill Lynch analyst Fraser McLaren said the offer was at 13 times his 2013 EPS forecast for International Power, but below his stand alone value of 400 pence per share.

The analyst added GDF would likely announce a disposal programme to finance the deal, which meant that most of the accretion could be compensated by EPS dilutive disposals.

"GDF Suez would consequently consider a revision upwards of its current disposal plans," GDF said in a statement on Thursday, adding that its top two shareholders supported its proposal to take full control of the British firm.

GDF's single largest shareholder is the French government, with a 36 per cent stake.

Citi analyst Peter Atherton said GDF had until April 26 to announce a firm intention to make an offer or confirm it is not going to make an offer.

"For GDF Suez, a deal at 390 pence per share would be mid-to-high single-digit percentage accretive to EPS," the analyst said. "Buying-in the remaining minorities at IPR would be positive for GDF Suez, both financially and strategically."

GDF completed its acquisition of 70 per cent of the British group in February 2011, creating the world's largest independent power producer. At the time it agreed not to bid for the remaining shares for 18 months, a lock-up which expires on 4 August.

Analysts have said GDF Suez could buy out the remaining stake earlier with the agreement of the British group's independent non-executive directors.

"The proposal is subject to certain pre-conditions and there can be no certainty that an offer will ultimately be forthcoming," International Power said in its statement.