Endesa's response to Gas Natural's bid; Endesa: ``Stronger business, greater value.''
October 03 2005 - 11:15AM
Business Wire
The following is a transcript of an interview by UK based Cantos
Communications with Endesa's (NYSE:ELE) CEO and CFO regarding Gas
Natural's bid: Endesa's response to Gas Natural's bid Endesa:
"Stronger business, greater value." Rafael Miranda Robredo, CEO
Unacceptable offer Q: Why aren't you recommending this takeover to
your shareholders? A: Because Endesa offers higher value and strong
growth with less risk than the offer made by Gas Natural, which is
completely unacceptable, is at a ridiculous price, offers very
little cash, no takeover premium and also the stock component has a
huge risk. Q: So what's the reaction of your major shareholders so
far? A: We are starting our roadshow now. Within the next three
weeks, we will see most of our major shareholders. I'm completely
convinced that they will support us, rejecting the offer of Gas
Natural, which is an opportunistic offer. Q: Why do you think a
takeover by Gas Natural would destroy value? A: Because they are
proposing selling strategic assets cheaply, destroying our leading
position in Spain. They are also proposing to destroy our European
platform, which clearly will give us growth of approximately 15 per
cent. in the near future. Also, they are introducing a declining
business, which is losing market share, and, on top of that, there
are a lot of execution risks and huge negative synergies. Q: But
isn't there some logic in integrating electricity and gas going
forward? A: It depends on the integration and with whom you
integrate. In the case of Gas Natural, Gas Natural is mainly a
distribution company. They are not adding value to our project. For
example, they do not have reserves and, also, we are now buying
cheaper gas than them. Q: Now, you've talked about shareholders
losing out, but wouldn't consumers actually benefit from this deal?
A: Clearly no, because they are proposing to create a duopoly in
Spain. It would also create monopolies for gas and electricity in
large regions of the country. This would mean that will be a step
backwards in the liberalisation process of Spain. So, clearly,
there is no benefit for consumers. Growth prospects Q: Why do you
believe Endesa is stronger as an independent company? A: Because we
are convinced that Endesa will deliver superior growth and value
than the combined entity, with less risk. Q: But can you deliver
the same growth that can be achieved by a merger of the two
companies? A: Absolutely, yes. The growth, in our case, will come
from markets with high potential growth, such as Spain and
Portugal, which will grow at 7 per cent., or our business in Italy
that will grow close to double digits. It will also come from
operational improvements and from our ongoing cost reduction
programme that will deliver us a margin above EUR 500m. Q: So what
are your mid-term targets? A: We have clear targets for the next
five years. EBITDA will grow between 10 per cent. to 11 per cent.
and the dividend will grow above 12 per cent. "Stronger business,
greater value" Q: Germany and France have both effectively created
"national champions" in the utility sectors. So why shouldn't
Spain? A: The combined entity would not be larger than the current
Endesa. In fact, in enterprise value, it would only be 12 per cent.
larger than us, because they propose to dispose of assets. Also,
let me say that, in electricity, they are smaller and weaker. I
believe that "national championship" is an old-fashioned idea and
probably an anti-competitive idea. Q: So why should shareholders
stand by this management? A: This management is the one that has
really created a leading and respected company in the world. We
have been able to maintain our leadership in Spain even after the
liberalisation measures in 1997. We have created a platform of
growth in Europe, being in the top five of European utilities. We
also have a good business in Latin America. We have created value
for our shareholders and we are probably now in our best moment. Q:
And are you looking for a "white knight"? A: All I can say is that
we know everybody in the industry. We are very well known by the
industry and, of course, I am sure that there is a lot of interest
in this transaction because Endesa is a great company. Anything
could happen, but I'm sure that Endesa has a clear and great future
as an independent company. Q: So you're confident that Endesa can
retain its independence? A: Absolutely, yes. Jose - Luis Palomo,
CFO Valuation and bid structure Q: Endesa has characterised the Gas
Natural bid as cheap and hostile, so what would be a fair price for
your stock? A: Well, I don't want to be specific on the price
because I don't want to put a cap on the valuation of the company
for the shareholders. But the bid that we have on the table, and
the price, is very low. It's clearly very low for the shareholders
and the market has already discounted the offer in less than two
weeks. Q: So what do you make of the mixed cash/stock bid
structure? A: It is totally unacceptable. The cash component is
very small - only one third - and the cash is coming from the
assets of our company, so there is no cash component on the offer.
And the paper - that is two thirds - is overvalued paper. It has a
lot of risk, and there is also a risk of flowback. Q: So what do
you make of the proposal to on-sell some of your assets to one of
your biggest competitors, Iberdrola? A: I think it's kind of a
rip-off of our shareholders. Those assets have been earmarked for a
large competitor, and they are not getting the proper value that
they should have. Actually, in a public auction, they would have a
much higher value than the one they have announced. Regulatory
issues Q: Why do you believe Brussels should oversee this bid? A:
Well, we have received clear advice on how to calculate the
revenues of the company, according to the regulations of mergers
and concentrations with the regulations of the European Union. It
is clear that more than one third of the turnover - more than one
third of the revenues - is outside of Spain, because we have large
operations in Italy and France. So we do not have two thirds in one
country. Therefore, the competitive authorities in this case should
be Brussels. Q: So do you feel you'll be disadvantaged by
regulators if the bid doesn't go through? A: We do not think so.
The regulator has to be fair. They have to regulate for everybody
and they cannot discriminate. Maybe just the opposite; the White
Paper studies the regulations and it goes very much along the lines
that Endesa has been supporting. Returns to shareholders Q: Why are
you announcing the sale of non-strategic assets? Is this just to
bolster your defence? A: Not at all. It is not that we announced
the sale of non-strategic assets. We have already sold other
non-strategic assets; for instance, the telecom assets, for close
to EUR 3bn. Therefore, we have a policy of selling those
non-strategic assets and in the last 12 months we have sold more
than EUR 3.5bn worth of assets. Right now, what we are doing is
keeping going with this policy of selling the non-strategic assets.
We have identified another EUR 750m worth of assets that are going
to be sold in the short-term. Q: So what are you promising in terms
of dividends? A: We are promising something that the shareholders
are going to like. We are promising 12 per cent. growth in the
dividend, based on ordinary income, plus 100 per cent. in dividends
rising from the capital gains of the company. Q: So why are you
announcing specific performance targets for the first time now? A:
Well, there is a bad bid on the table right now and we want our
shareholders to evaluate properly the value of Endesa. We want to
share with them the vision that we have for the company and the
targets that we think we can achieve. We have identified growth in
EBITDA of close to 11 per cent. That is a EUR 3bn growth in EBITDA.
The shareholders should now have this information, given the
transparency that is needed right now. Q: And you're saying this
management's committed to that? A: Absolutely. We are committing
our own compensation to those targets and to achieving the goals
that we are now promising to our shareholders.
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