European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

There have been some important regulatory changes included in the royal decree issued last week, as the Spanish Government uses demagogy and asks for a "social contribution" from utilities to compensate households from the escalation in amount of the electricity bill in Spain.
The negative impact of those regulatory changes on <a href="https://www.smartkarma.com/entities/naturgy-energy-group-sa" target="_blank" data-smartkarma-citation="entities:21271:1" rel="noopener">Naturgy Energy Group SA (NTGY SM)</a>'s income is estimated at around €350 mn, equivalent to 9.2% of 2021e EBITDA and 15.5% of net profit. Nevertheless, the takeover offer has supported Naturgy's share price, in contrast to the strong cuts suffered by <a href="https://www.smartkarma.com/entities/endesa-sa" target="_blank" data-smartkarma-citation="entities:21264:1" rel="noopener">Endesa SA (ELE SM)</a> (-11% in four days) and <a href="https://www.smartkarma.com/entities/iberdrola-sa" target="_blank" data-smartkarma-citation="entities:21276:1" rel="noopener">Iberdrola SA (IBE SM)</a> (-8.8%). See charts in the Insight.
The Board of <a href="https://www.smartkarma.com/entities/naturgy-energy-group-sa" target="_blank" data-smartkarma-citation="entities:21271:1" rel="noopener">Naturgy Energy Group SA (NTGY SM)</a> considers the consideration offered by IFM as "fair", but highlights that the top shareholders will not tender their shares, neither will the Board members, nor will the treasury shares or those held for management compensation be tendered. The Board does not make any recommendation to shareholders to tender. The Board also underlines the negative impact of the takeover bid on the company's corporate governance. The Board thus throws the gauntlet at IFM.
There are four possible bid outcome scenarios:
<ol class="">
<li>
IFM withdraws the bid prior to the end of the offer period "when, due to exceptional circumstances" as per art. 33, sec C of the Takeover Code. The current energy reform undertaken by the Government could support this claim. Probability is very low.</li>
<li>
IFM does not reach the 17% minimum acceptances threshold (although it could hypothetically agree to a 10% threshold) and withdraws the bid. Share price would likely fall.</li>
<li>
IFM achieves its objective without improving the current offer price. The gain is small: gross spread is 2.7%, but there is the risk of apportionment (25% of the share capital could potentially tender), and the share price post-bid could be negatively affected by lack of liquidity. Governmental intervention in the energy market constitutes a good argument for the bidder not to sweeten the offer and also an incentive to tender, in anticipation of a downward adjustment of the post-takeover share price.</li>
<li>
IFM improves the offer. In this case, I do not think that the improvement would be very significant (less than 5%) with a low probability, in my view.</li>
</ol>
I do not see an interesting option holding the shares until the end of the acceptance period (8 October), considering the risks. It could potentially be interesting to stay up to five calendar days before the end of the acceptance period (2 October), in case there is an improvement in IFM's offer during this period and sell upon the news. The option of holding the shares and not tendering them entails a risk of illiquidity (the free-float could be greatly reduced) and the potential for revaluation in the medium term is not excessively attractive (median TP on Capital IQ consensus is €22.37), albeit the dividend yield is c. 5.6%.

There have been some important regulatory changes included in the royal decree issued last week, as the Spanish Government uses demagogy and asks for a "social contribution" from utilities to compensate households from the escalation in amount of the electricity bill in Spain.
The negative impact of those regulatory changes on Naturgy Energy Group SA (NTGY SM)'s income is estimated at around €350 mn, equivalent to 9.2% of 2021e EBITDA and 15.5% of net profit. Nevertheless, the takeover offer has supported Naturgy's share price, in contrast to the strong cuts suffered by Endesa SA (ELE SM) (-11% in four days) and Iberdrola SA (IBE SM) (-8.8%). See charts in the Insight.
The Board of Naturgy Energy Group SA (NTGY SM) considers the consideration offered by IFM as "fair", but highlights that the top shareholders will not tender their shares, neither will the Board members, nor will the treasury shares or those held for management compensation be tendered. The Board does not make any recommendation to shareholders to tender. The Board also underlines the negative impact of the takeover bid on the company's corporate governance. The Board thus throws the gauntlet at IFM.
There are four possible bid outcome scenarios:


IFM withdraws the bid prior to the end of the offer period "when, due to exceptional circumstances" as per art. 33, sec C of the Takeover Code. The current energy reform undertaken by the Government could support this claim. Probability is very low.

IFM does not reach the 17% minimum acceptances threshold (although it could hypothetically agree to a 10% threshold) and withdraws the bid. Share price would likely fall.

IFM achieves its objective without improving the current offer price. The gain is small: gross spread is 2.7%, but there is the risk of apportionment (25% of the share capital could potentially tender), and the share price post-bid could be negatively affected by lack of liquidity. Governmental intervention in the energy market constitutes a good argument for the bidder not to sweeten the offer and also an incentive to tender, in anticipation of a downward adjustment of the post-takeover share price.

IFM improves the offer. In this case, I do not think that the improvement would be very significant (less than 5%) with a low probability, in my view.

I do not see an interesting option holding the shares until the end of the acceptance period (8 October), considering the risks. It could potentially be interesting to stay up to five calendar days before the end of the acceptance period (2 October), in case there is an improvement in IFM's offer during this period and sell upon the news. The option of holding the shares and not tendering them entails a risk of illiquidity (the free-float could be greatly reduced) and the potential for revaluation in the medium term is not excessively attractive (median TP on Capital IQ consensus is €22.37), albeit the dividend yield is c. 5.6%.

IFM/Naturgy: Board Opinion And Bid Scenarios

Solarpack Corp Tecnologica / Event-Driven

On 16 June, EQT Infrastructure, a fund managed by <a href="https://www.smartkarma.com/entities/eqt-ab" target="_blank" data-smartkarma-citation="entities:28922:1" rel="noopener">EQT AB (EQT SS)</a> , <a href="http://cnmv.es/portal/verDoc.axd?t=%7B18435c31-8db9-4abc-b1e4-bf7872682d88%7D" target="_blank" rel="noopener">announced a voluntary takeover bid</a> for 100% of the shares of <a href="https://www.smartkarma.com/entities/solarpack-corp-tecnologica-sa" target="_blank" data-smartkarma-citation="entities:33493:1" rel="noopener">Solarpack Corp Tecnologica (SPK SM)</a>, a developer and owner of solar photovoltaic plants, mainly active in Spain, Chile and India.
Consideration is €26.5/share, in cash, for 100% of the shares, for an implied equity value of €881.2 mn and an implied EV of €1,258.7 mn. This is 10.1x EV/Fwd Revenue and 18.7X EV/Fwd EBITDA.
EQT Infrastructure has signed irrevocable agreements for 50.957% (with €5 mn break-up fee, c. 0.6% of the transaction).
The rationale seems to be the development of the company under EQT ownership.
The offer is not particularly generous on the basis of a median TP on Capital IQ consensus of €29.4/share, but the premium offered is 45% to the prior closing. With a nearly 51% irrevocable undertakings committed, the market is discounting the success of the offer.
The shares increased by 43% and closed at €26.15, a gross spread of 1.3%, c. 4% annualised assuming the deal closes in 9 months.
Albeit the spread is not terribly exciting, I recommend long SPK SM, and would take advantage of any dip to add to the position.

On 16 June, EQT Infrastructure, a fund managed by EQT AB (EQT SS) , announced a voluntary takeover bid for 100% of the shares of Solarpack Corp Tecnologica (SPK SM), a developer and owner of solar photovoltaic plants, mainly active in Spain, Chile and India.
Consideration is €26.5/share, in cash, for 100% of the shares, for an implied equity value of €881.2 mn and an implied EV of €1,258.7 mn. This is 10.1x EV/Fwd Revenue and 18.7X EV/Fwd EBITDA.
EQT Infrastructure has signed irrevocable agreements for 50.957% (with €5 mn break-up fee, c. 0.6% of the transaction).
The rationale seems to be the development of the company under EQT ownership.
The offer is not particularly generous on the basis of a median TP on Capital IQ consensus of €29.4/share, but the premium offered is 45% to the prior closing. With a nearly 51% irrevocable undertakings committed, the market is discounting the success of the offer.
The shares increased by 43% and closed at €26.15, a gross spread of 1.3%, c. 4% annualised assuming the deal closes in 9 months.
Albeit the spread is not terribly exciting, I recommend long SPK SM, and would take advantage of any dip to add to the position.

EQT/Solarpack: Friendly Take-Private Deal

On 18 February <a href="https://www.smartkarma.com/entities/acciona-sa" target="_blank" data-smartkarma-citation="entities:21248:1" rel="noopener">Acciona SA (ANA SM)</a> announced it would list 25% of its renewables subsidiary, Acciona Energías Renovables, and would retain control.
On 7 June, the Spanish Securities and Markets Commission (CNMV) approved the registration document for the IPO, exclusively aimed at institutional investors.
<ul>
<li>
The IPO consists of a secondary offering by parent company Acciona SA and will serve as a preliminary step for Acciona Energias Renovables' admission to trading on the Spanish Continuous Market.
</li>
<li>
Press sources point to a value between €10 bn and €12 bn, the largest IPO in the Spanish market since <a href="https://www.smartkarma.com/entities/aena-sa" target="_blank" data-smartkarma-citation="entities:21244:1" rel="noopener">Aena SA (AENA SM)</a> in 2015. Acciona plans to place around 25% of the capital (30% if the green shoe is added), for which it could raise between €2.5 and €3 bn.
</li>
<li>
The objective is to have the shares listed on the last week of June.
</li>
</ul>
According to Acciona, the rationale of the spin-off is:
<ul>
<li>
financing its ambitious growth plans in renewables: the IPO will allow to accelerate growth goals. The pre-IPO target was to reach 15,000MW in 2024 from 10,700MW in 2020. Now this target is improved to 20,000MW in 2025. Acciona Energías Renovables, as a pure renewables operator, will seek to maximize its growth potential, with an unrestricted balance sheet with access to a more efficient cost of capital. 
</li>
<li>
Acciona will crystallize the value in the group's fastest growing subsidiary. This subsidiary represents 75% of the group's EBITDA, but Acciona receives little recognition for its renewables business and the high proportion of profits these assets now generate.
</li>
</ul>
I calculate Acciona's fair value by using a DCF (Capital IQ consensus, WACC 5.5%, g 1.5%). I add the value of subsidiaries and apply a 15% holding discount.
Fair value is €172.4/share, 25% upside, although planned growth acceleration for Acciona Energías Renovables, should allow further upward revisions in the parent company target prices.
<ul>
<li>
Acciona's shares trade at 10.3x EV/Fwd EBITDA, below 16.1x at which <a href="https://www.smartkarma.com/entities/orsted-a-s" target="_blank" data-smartkarma-citation="entities:24765:1" rel="noopener">Orsted A/S (ORSTED DC)</a> trades.
</li>
<li>
The valuation of Acciona Energías Renovables includes some €4 bn of financial debt, over 4x EBITDA. Assuming a cautious 20% discount on Orsted, or 13.0x EBITDA, Acciona Energías Renovables would be valued at €12,000 mn euros, 87% of the current market of the entire group.
</li>
<li>
Assuming Acciona nets €3 bn, half of the IPO proceeds, €1.5 bn, together with another €1.5 bn from the syndicated loan (see background section), will significantly lower the net debt (and the WACC) of Acciona parent, thus triggering a re-rating of the shares.
</li>
</ul>
Recommendation long ANA SM, TP €172.4, with possibility of further upside.

On 18 February Acciona SA (ANA SM) announced it would list 25% of its renewables subsidiary, Acciona Energías Renovables, and would retain control.
On 7 June, the Spanish Securities and Markets Commission (CNMV) approved the registration document for the IPO, exclusively aimed at institutional investors.


The IPO consists of a secondary offering by parent company Acciona SA and will serve as a preliminary step for Acciona Energias Renovables' admission to trading on the Spanish Continuous Market.


Press sources point to a value between €10 bn and €12 bn, the largest IPO in the Spanish market since Aena SA (AENA SM) in 2015. Acciona plans to place around 25% of the capital (30% if the green shoe is added), for which it could raise between €2.5 and €3 bn.


The objective is to have the shares listed on the last week of June.


According to Acciona, the rationale of the spin-off is:


financing its ambitious growth plans in renewables: the IPO will allow to accelerate growth goals. The pre-IPO target was to reach 15,000MW in 2024 from 10,700MW in 2020. Now this target is improved to 20,000MW in 2025. Acciona Energías Renovables, as a pure renewables operator, will seek to maximize its growth potential, with an unrestricted balance sheet with access to a more efficient cost of capital. 


Acciona will crystallize the value in the group's fastest growing subsidiary. This subsidiary represents 75% of the group's EBITDA, but Acciona receives little recognition for its renewables business and the high proportion of profits these assets now generate.


I calculate Acciona's fair value by using a DCF (Capital IQ consensus, WACC 5.5%, g 1.5%). I add the value of subsidiaries and apply a 15% holding discount.
Fair value is €172.4/share, 25% upside, although planned growth acceleration for Acciona Energías Renovables, should allow further upward revisions in the parent company target prices.


Acciona's shares trade at 10.3x EV/Fwd EBITDA, below 16.1x at which Orsted A/S (ORSTED DC) trades.


The valuation of Acciona Energías Renovables includes some €4 bn of financial debt, over 4x EBITDA. Assuming a cautious 20% discount on Orsted, or 13.0x EBITDA, Acciona Energías Renovables would be valued at €12,000 mn euros, 87% of the current market of the entire group.


Assuming Acciona nets €3 bn, half of the IPO proceeds, €1.5 bn, together with another €1.5 bn from the syndicated loan (see background section), will significantly lower the net debt (and the WACC) of Acciona parent, thus triggering a re-rating of the shares.


Recommendation long ANA SM, TP €172.4, with possibility of further upside.

Siemens Gamesa Renewable Energy, S.A. / Event-Driven

<div>
On 18 May, economic daily Expansion said that <a href="https://www.smartkarma.com/entities/siemens-ag" target="_blank" data-smartkarma-citation="entities:21713:1" rel="noopener">Siemens AG (SIE GR)</a> was planning to launch a delisting bid for <a href="https://www.smartkarma.com/entities/siemens-gamesa-renewable-energy-s-a" target="_blank" data-smartkarma-citation="entities:21270:1" rel="noopener">Siemens Gamesa Renewable Energy, S.A. (SGRE SM)</a>.
The CNMV (National Securities Market Commission, the Spanish market watchdog) suspended Siemens Gamesa trading shortly after 9 a.m. and until 2:30 p.m. and asked Siemens to clarify whether it will launch an exclusion takeover bid for Gamesa.
<ul>
<li>Siemens Energy (ENR GR) explained in a note to the CNMV that it was conducting a "strategic review" of its entire portfolio of assets, and that Siemens Energy was not "currently" working on a delisting bid, although it acknowledged that it had hired external advisers for the strategic review.</li>
<li>Siemens Gamesa's shares resumed trading and closed at €26.52, far from the €38.48 reached on 7 January (historical high).</li>
</ul>
Siemens Gamesa needs to step up changes to adapt to a rapidly evolving wind energy sector. Although Siemens Energy has control of the group's management, by holding the majority of Siemens Gamesa's capital, having 100% would give it total freedom to accelerate change.
There have already been some rumours of a possible takeover bid, the last one in December 2020, when it was discussed the interest of large Asian groups such as Shanghai Electric, and the Japanese conglomerate Mitsubishi, according to Expansion. These two companies reportedly approached Siemens in recent months to discuss the purchase of some Siemens Gamesa assets.
</div>
<div>
Siemens is already undergoing a deep business transformation and cost adjustment. Current prices (estimated multiples of 25.0x and 15.6x EV/EBITDA 2021e and 2022e respectively) already discount a scenario of strong growth and leave little room for pressure from higher supply costs or increased competition.
Siemens paid €20 per share (24% less than the current price) for the 8% it bought from Iberdrola in February 2020, and would not presumably be wiling to pay a high bid premium in case it decided to launch a bid for Siemens Gamesa. At current market prices (without assuming any premium), the amount of the possible takeover bid would amount to c. €5,900 mn euros (32.8% of the capitalization of Siemens Energy and 5.3% that of Siemens).
The stake in Siemens Gamesa represents c. 67.6% of the market cap of Siemens Energy. Siemens Gamesa provides about half of Siemens Energy's EBIT, which suggests that the other businesses of Siemens Energy are undervalued. Siemens Energy is 46.07% owned by Siemens.
I value Siemens Gamesa using a DCF model. My TP is €30.3/share, a 14.3% premium to the closing price on 18 May. Although I am positive on Siemens Gamesa, I do not believe that Siemens will launch a bid anytime soon.
</div>


On 18 May, economic daily Expansion said that Siemens AG (SIE GR) was planning to launch a delisting bid for Siemens Gamesa Renewable Energy, S.A. (SGRE SM).
The CNMV (National Securities Market Commission, the Spanish market watchdog) suspended Siemens Gamesa trading shortly after 9 a.m. and until 2:30 p.m. and asked Siemens to clarify whether it will launch an exclusion takeover bid for Gamesa.

Siemens Energy (ENR GR) explained in a note to the CNMV that it was conducting a "strategic review" of its entire portfolio of assets, and that Siemens Energy was not "currently" working on a delisting bid, although it acknowledged that it had hired external advisers for the strategic review.
Siemens Gamesa's shares resumed trading and closed at €26.52, far from the €38.48 reached on 7 January (historical high).

Siemens Gamesa needs to step up changes to adapt to a rapidly evolving wind energy sector. Although Siemens Energy has control of the group's management, by holding the majority of Siemens Gamesa's capital, having 100% would give it total freedom to accelerate change.
There have already been some rumours of a possible takeover bid, the last one in December 2020, when it was discussed the interest of large Asian groups such as Shanghai Electric, and the Japanese conglomerate Mitsubishi, according to Expansion. These two companies reportedly approached Siemens in recent months to discuss the purchase of some Siemens Gamesa assets.


Siemens is already undergoing a deep business transformation and cost adjustment. Current prices (estimated multiples of 25.0x and 15.6x EV/EBITDA 2021e and 2022e respectively) already discount a scenario of strong growth and leave little room for pressure from higher supply costs or increased competition.
Siemens paid €20 per share (24% less than the current price) for the 8% it bought from Iberdrola in February 2020, and would not presumably be wiling to pay a high bid premium in case it decided to launch a bid for Siemens Gamesa. At current market prices (without assuming any premium), the amount of the possible takeover bid would amount to c. €5,900 mn euros (32.8% of the capitalization of Siemens Energy and 5.3% that of Siemens).
The stake in Siemens Gamesa represents c. 67.6% of the market cap of Siemens Energy. Siemens Gamesa provides about half of Siemens Energy's EBIT, which suggests that the other businesses of Siemens Energy are undervalued. Siemens Energy is 46.07% owned by Siemens.
I value Siemens Gamesa using a DCF model. My TP is €30.3/share, a 14.3% premium to the closing price on 18 May. Although I am positive on Siemens Gamesa, I do not believe that Siemens will launch a bid anytime soon.


There are two approvals pending:
<ul>
<li>
New Mexico Public Regulation Commission (PRC)
</li>
<li>
Nuclear Regulatory Commission
</li>
</ul>
PRC hearing examiner, Ashley Schannauer, wants Avangrid to address concerns and explain why the company didn't make some disclosures ($25 million in penalties and disallowances for poor service over the past 16 months). The hearing examiner order directs the filing companies to submit response proposals by 18 May and tentatively scheduled a status conference to determine next steps by 28 May.
Meanwhile Iberdrola has posted solid Q1 results and has announced that it will subscribe to 81.5% ($3,260 mn) of Avangrid's $4 bn increase, with the Qatar Investment Authority (QIA, top shareholder in Iberdrola with a 6% stake) subscribing the remaining $740 mn.
<div>
The concerns of the PRC hearing examiner, although legitimate in my view, are more akin to a public dress down "you kids have been very naughty", but should not significantly delay the approvals needed for the acquisition of PNM. The deal seems on track for completion during H2 2021.
PNM closed on 12 May at $49.15, vs. an offer price of $50.3.
</div>
<ul style="list-style-type: disc;">
<li>which represents a gross spread of 2.3%, c. 4.6% annualized (assuming the deal completes in six months), which I consider attractive for a low-risk deal that is almost certainly to close in H2 2021.</li>
<li>Reiterate Long PNM.</li>
</ul>

There are two approvals pending:


New Mexico Public Regulation Commission (PRC)


Nuclear Regulatory Commission


PRC hearing examiner, Ashley Schannauer, wants Avangrid to address concerns and explain why the company didn't make some disclosures ($25 million in penalties and disallowances for poor service over the past 16 months). The hearing examiner order directs the filing companies to submit response proposals by 18 May and tentatively scheduled a status conference to determine next steps by 28 May.
Meanwhile Iberdrola has posted solid Q1 results and has announced that it will subscribe to 81.5% ($3,260 mn) of Avangrid's $4 bn increase, with the Qatar Investment Authority (QIA, top shareholder in Iberdrola with a 6% stake) subscribing the remaining $740 mn.

The concerns of the PRC hearing examiner, although legitimate in my view, are more akin to a public dress down "you kids have been very naughty", but should not significantly delay the approvals needed for the acquisition of PNM. The deal seems on track for completion during H2 2021.
PNM closed on 12 May at $49.15, vs. an offer price of $50.3.


which represents a gross spread of 2.3%, c. 4.6% annualized (assuming the deal completes in six months), which I consider attractive for a low-risk deal that is almost certainly to close in H2 2021.
Reiterate Long PNM.


Iberdrola (Avangrid)/PNM Resources: Regulator's Reprimand and Capital Increase

Spain

Iberdrola S.A. generates, distributes, trades, and markets electricity in the United Kingdom, United States, Spain, Portugal, and Latin America.  The Company specializes in clean energy and more specifically wind power.

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Iberdrola SA (IBE SM)

IFM/Naturgy: Board Opinion And Bid Scenarios

It could potentially be interesting to stay up to 2 October, in case there is an improvement in IFM's offer and sell upon the news, unless one...

Jesus Rodriguez Aguilar

EQT/Solarpack: Friendly Take-Private Deal

With 51% irrevocable undertakings, the market is discounting the success of the offer. Fross spread is 1.3%, c. 4% annualised assuming the deal...

Jesus Rodriguez Aguilar

Spin-Off of Acciona Renewables

Acciona trades at 10.3x EV/Fwd EBITDA, below 16.1x for ORSTED DC. IPO should allow value to crystallize and financial debt to be repaid, thus...

Jesus Rodriguez Aguilar

Siemens/Siemens Gamesa: Bid Rumours

I value Siemens Gamesa using a DCF model. My TP is €30.3/share, 14.3% premium to closing price on 18 May. Although I am positive on SGRE, I do not...

Jesus Rodriguez Aguilar

Iberdrola (Avangrid)/PNM Resources: Regulator's Reprimand and Capital Increase

PRC's concerns delay the approvals needed. The deal seems on track for completion during H2 2021. Gross spread 2.3%, c. 4.6% annualized (assuming...

Jesus Rodriguez Aguilar

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