Power games

20 July 2004

The chances of investors in the Italian power group being taken out at a juicy premium look slim. EdF wants to delay the put options that might trigger a mandatory offer. But even if the puts were exercised, it could fight a full buyout.

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Electricite de France is trying to renegotiate the put options it has written in favour of its partners in Edison's parent company, Italenergia. If these were exercised, they could give the French power group a direct stake of 64% in Edison. Under Italian takeover rules, this could trigger a mandatory buyout of the minorities.

There are several ideas reported in the press. One is that EdF might offer to pay the Italian banks that own 36% of Italenergia their implied capital gains under the put agreement. The banks would keep ownership of the shares, but the put option price would fall to market prices.

Another idea is that EdF could buy the stakes of two of its partners, Fiat and Romain Zaleski, but then transfer them to banks. These are likely to include BNP Paribas and Citigroup. The banks would then reportedly have an option to sell the shares back to EdF in 2007.

The price of a mandatory offer for Edison would be determined by the average between the top price EdF paid for its majority stake and the average Edison trading price in the previous 12 months. If Edison's share price didn't move from its current E1.4 level, the minority buyout would be at E1.8 a share, a premium of almost 30%. This would cost EdF E2.7bn.

EdF's voting rights in Edison are currently capped at 2%.

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