France Buys Another British Business

Published in Investing on 16 April 2012

International Power falls to a recommended cash bid from French giant GDF Suez.

International Power (LSE: IPR) topped the list of FTSE 100 risers this morning, climbing more than 3% after agreeing to a cash takeover from a huge French firm.

French nickers

International Power was created in October 2000, following the demerger of National Power. The global independent power generator has interests in over 70 gigawatts of power-generation capacity around the world, including 37 power stations in 18 countries.

As I write, International Power shares are up nearly 13p to almost 417p, valuing the group's equity at over £21 billion. This follows an agreed cash bid of 418p per share from Electrabel, a subsidiary of French energy giant GDF Suez (GDF stands for Gaz de France).

However, this is more of a bear hug than a full-on bid, as GDF Suez has owned 70% of International Power since it merged some of its international operations into the British group via a reverse takeover announced in August 2010 and completed in February 2011.

What's more, today's 418p-a-share offer is a 7.2% improvement on an indicative offer of 390p per share revealed on 29 March and promptly rejected by International Power's independent directors. Another bonus for shareholders is they retain the right to receive the final dividend of 6.6 euro cents, worth another 5.4p per share.

Big business

With world energy consumption having fallen only once in the past 30 years (in recession-hit 2009), the energy market has been anything but boring in recent years. In fact, thanks to soaring energy costs, this has been the go-go sector in what has been a disappointing decade for investors.

Even so, as bids go, this is a big one, as International Power is the 24th-largest member of the blue-chip FTSE 100 index of elite British businesses, just behind big bank Lloyds Banking Group (LSE: LLOY).

In my view, International Power shareholders have done pretty well out of this deal, selling their shares for nearly 16 times earnings. As minority investors, they must have known that GDF Suez would eventually ease them out. Today's offer represents a premium of nearly 21% to the sub-346p at which the shares closed on 29 February, before GDF's initial market announcement.

French leave

Based on today's market reaction, this is very much a done deal, and will be funded from GDF's cash pile and existing credit facilities. Indeed, I suspect it will be a mere formality for GDF to gain the necessary three-quarters (75%) of minority shareholders to vote in favour of its scheme of arrangement. More details of the offer will be posted to shareholders by Monday, 14 May.

Thus, GDF has spent almost £8 billion to buy out International Power's minority investors, as well as all outstanding convertible bonds and share options. Nevertheless, this is a modest morsel to one of Europe's biggest corporations, with 218,900 employees and revenues of €90.7 billion in 2011.

No doubt this latest corporate land-grab by a French Titan could stir up some anti-European sentiment. However, it looks like a win-win deal to me, as investors in the British plc get nearly £8 billion in cash to invest elsewhere, while GDF increases its exposure to fast-growing developing markets.

However, follow this acquisition, there will be only two London-listed big energy companies left.

Of the Big Six energy suppliers that supply 99% of our domestic energy, EDF is French-owned, E.ON and npower are German-owned, Scottish Power is Spanish-owned, while Scottish & Southern Energy (LSE: SSE) and British Gas owner Centrica (LSE: CNA) are UK-listed.

Given ongoing overseas interest in the UK's energy assets, it seems likely that SSE and Centrica will fall to foreign bidders in due course. Only time will tell, so watch this space!

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Comments

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Crawfish123 16 Apr 2012 , 12:26pm

As a shareholder i would like to Boo the deal, forget the money its a big shame that a company with a great profile like this is being taken out. :-(

realist2 16 Apr 2012 , 2:29pm

I'm inclined to agree with CrawFish123 also as a longterm shareholder of all the old utilities and no doubt soon to be of IPR.
You can bet your bottom dollar that the fat cats will all do very nicely out of it thank you! The only consolation is that it'll save me a bob or too on commission on certificated shares .

CunningCliff 16 Apr 2012 , 3:10pm

Any tips for IPR shareholders on where to reinvest their cash from GDF, Fools? Where's the next big bargain in the energy sector?

All the best,

Cliff

Dylantherabbit 16 Apr 2012 , 3:15pm

It's a shame to see IPR go, a few years down the road and 418p a share would have looked like a bad joke. They actually have interest in about 100 power plants spread around the globe, including the U.K, and a number of new plants being built. A well run business and a wise move by GDF.

kilkeal 24 Oct 2012 , 11:08am

GDF Suez is 36% owned by the French State. It appears odd, having privatised our own energy companies that other States have an interest in them. Our companies are very vulnerable if they are the target of state owned companies from abroad, as States have bottomless pockets.

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