Merger between EDP and Gas Natural? “Politically hard”, analysts say

  • ECO News
  • 4 July 2017

The rumor of the merger operation is the "political interference" between Portugal and Spain, analysts from BPI and Haitong state. EDP denied negotiations with Gas Natural.

Generally speaking, the merger may be interesting both for the Portuguese EDP as well as for the Spanish Gas Natural, but that is a highly unlikely possibility from a political viewpoint, analysts state. EDP has denied any negotiations with Gas Natural.

Politically, this would be very hard for the Portuguese government to accept, as EDP is the de facto monopoly in electricity distribution in Portugal and by far the biggest electricity generator”, Haitong analysts state, after Reuters disclosed that Gas Natural approached EDP for a possible merger, assessed at 35 billion euros. “While EDP does not have much Portuguese capital in its shareholding structure, it is still headquartered in Lisbon, so it is easier for the government to deal with the company”, Haitong further justifies.

BPI analysts also foresee “political implications” of this merger: “Besides financial considerations, the main risk we see for this deal to happen is the political interference, as control of the new company would probably be more biased towards Portugal or Spain, making one of the two countries losing one of its largest companies”.

EDP’s shareholders might also not accept the merger, since it could cause problems in terms of competition. “We do not believe that EDP’s biggest shareholder, the Chinese company China Three Gorges (with a 21.35% stake), would be interested in swapping its stake for a minor position in Gas Natural or selling it without a large control premium”, Haitong states. The bank also highlights the fact that EDP’s voting rights are limited to 25%, and so “Gas Natural would have to be very generous in the offer terms to convince enough of EDP’s shareholders to tender their shares to unblock voting rights’ limits”.

Regardless of these difficulties — which make the merger unlikely to happen –, the operation would be “a potentially good strategic fit between the two companies, with little to no overlap in most of the businesses particularly after the recent sale of EDP’s Spanish gas distribution unit Naturgas”, BPI states. BPI further estimates the merger would generate 450 million euros synergies per year: “we anticipate a potential value creation of 0.5 euros per share for EDP and 2.3 euros per share for Gas Natural”. Haitong analysts agree that the operation would be a good strategic fit: “both companies have complementary portfolios, which is good but also reduces the synergy potential”.

In spite of the case of CMECs (Costs of Maintenance of Contractual Equilibrium), the rumor of the merger benefited EDP’s shares more than Gas Natural’s: after the longest period of losses for EDP, it accelerated 3% in the Portuguese Stock Market. 

EDP denied negotiations with Gas Natural over a merger deal, in a press release sent to CMVM (Portuguese Securities Market Commission).