EDP-Energias de Portugal SA is poised to reject a 9.1 billion euro ($10.9 billion) takeover offer from China Three Gorges Corp on the grounds that it undervalues Portugal’s biggest energy company, according to people with knowledge of the matter.
The board of EDP, which may meet as early as this week, views the current bid of 3.26 euros a share as too low as it indicates a premium of 4.8 percent over close, said the people, asking not to be identified because the discussions are private. EDP is also working with advisers including UBS Group AG on a potential defense, the people said.
Representatives for EDP and UBS declined to comment.
Shares of EDP surged the most in a decade to above the bid level on Monday, signalling that investors expect the Chinese utility, which is its biggest investor, to sweeten the offer to gain full control. For Three Gorges, which spent two decades building a hydro-power plant spanning China’s Yangtze River, the deal would bolster its efforts to expand abroad and give it deeper access to markets in Europe, the US and Brazil.
China’s biggest renewable-energy developer already is the largest shareholder of EDP with a 23 percent stake and now is seeking more than 50 percent. While the government in Lisbon has indicated it’s comfortable with the Chinese offer, it holds out little incentive for shareholders to tender their stock.
Shares of EDP rose 8.9 percent to about 3.39 euros in Lisbon after earlier jumping by the most since October 2008.
The low premium offered by Three Gorges echoes the struggle by Fortum Oyj had in winning over investors in its bid for Uniper SE last year.
The Finnish utility offered 8 billion euros to buy out the remainder of Uniper in September, immediately sending shares of the German power generator above the offer prices. Uniper’s stock kept rising as electricity prices recovered and at one point were 20 percent above Fortum’s offer. At least for now, Fortum has settled for a 47 percent stake it bought in Uniper from EON SE. Most other shareholders decided to keep their stake.
The transaction would advance a wave of consolidation among Europe’s leading utilities, which are acquiring assets and development skills in renewables as governments across the region crack down on pollution. EDP is one of Europe’s leading developers of renewable energy, building mainly wind farms and hydro plants. It has expanded in markets including Brazil and the US.
Other utilities such as Enel SpA and Iberdrola SA are unlikely to bid for EDP given the grasp Three Gorges already has, according to Elchin Mammadov, an analyst at Bloomberg Intelligence.
“No other EU utility is likely to bid for EDP,” Mammadov said. “Enel and Iberdrola have ruled out large-scale acquisitions in Europe. They would also try to avoid yet another bidding war in Europe.”