China Three Gorges Corp is planning to scale back its 9.1 billion-euro ($10.3 billion) takeover offer for EDP-Energias de Portugal SA amid concerns about political hurdles and valuation, people familiar with the matter said.
The state-owned firm is evaluating smaller alternative transactions that exclude US assets of EDP, which are the most likely to trigger regulatory opposition, the people said, asking not to be identified because the information is private. It has been exploring potential deals that would boost its exposure to EDP’s international operations, they said.
Three Gorges is considering investing in some of EDP’s Brazilian assets or forming a joint venture in the country, the people said. Deliberations are ongoing, and no final decisions have been made, they said.
The Chinese power giant has been reassessing the merits of its proposed EDP takeover after a sudden leadership change at Three Gorges, Bloomberg News reported. Increased political and regulatory scrutiny of Chinese investment in Europe and the US, as well as a lingering trade war, have also contributed to the lack of progress on the deal, people with knowledge of the matter said at the time.
Pursuing a smaller transaction could allow Three Gorges to walk away from a full takeover offer while still gaining some assets, blunting potential criticism about a failed deal pursuit. Any changes to the transaction would require signoff from Chinese regulators, the people said. Representatives for Three Gorges and EDP declined to comment.
Portugal’s securities regulator said that the bid may end if EDP’s annual shareholder meeting on April 24 rejects a proposal to remove a cap on voting rights, which was a condition set by Three Gorges. If shareholders decide to remove the cap, the regulator will give Three Gorges 45 calendar days to meet all the other conditions set for the bid. EDP’s bylaws limit voting rights to 25 percent and decisions on changing bylaws must be approved by two-thirds of the votes cast at a shareholder meeting.
Three Gorges, formed more than two decades ago to build a hydroelectric dam on the Yangtze River, began acquiring a stake in EDP more than five years ago as part of a Portuguese government bailout.