Marcelo Sá (Head of LatAm Utilities at UBS) has released a report assessing the primary offering recently announced by AES Eletropaulo. Below we present his analyses and thoughts related to this topic, as well as his considerations about how this is likely to be perceived by investors.
Enel announced a tender offer to buy control of Eletropaulo for R$28/share
Enel announced a tender offer today to buy control of Eletropaulo for R$28/share, higher than the R$25.51 bid made by Neoenergia earlier today (see our note, Is the bidding war ending?).
The offer is contingent on Enel acquiring more than 50% of Eletropaulo’s shares and the cancellation of the follow-on equity offering announced by Eletropaulo today.
Enel is committed to subscribing at least R$1bn in a future primary offering to be held after regulatory approval or closing of the tender offer, whichever happens last.
Will Eletropaulo get a higher bid?
The possibility of another bid is hard to determine, given Eletropaulo’s rich valuation. At R$28/share, we estimate implied valuation of 1.71x EV/RAB, representing a meaningful premium to RAB (see Figure 1 for EV/RAB sensitivity).
The most efficient discos we cover (Energisa and Equatorial) trade at 2x EV/RAB, while inefficient discos such as Copel trade below 1x EV/RAB. Besides the Neoenergia bid, on 5 April, Energisa’s board of directors approved a voluntary tender offer to buy control of Eletropaulo for R$19.38/share (see our 5 April note). In our view, the chances of Energisa outbidding Enel are low.
In our view, Energisa could also create value by bidding for Eletrobras’ discos, although the timing of the privatization auction is uncertain. Jose Múcio, the minister of the TCU (Brazilian watchdog), said it will take at least one month to vote on
Eletrobras discos’ bidding documents; therefore, the privatization can no longer happen on 21 May.
Is there any read-through for other utilities?
Light is up almost 5% today, given, in our view, news of continued industry consolidation following the bids for Eletropaulo. Energisa is up 2.5%, as we believe investors could think it may give up on bidding for Eletropaulo.
Valuation: Under Review
Given the possibility of another tender offer, our rating and PT are Under Review.
See Report provided by UBS: