Takeover bid from CTG to EDP is put on hold

  • ECO News
  • 3 September 2018

The Chinese government's decision to remove the CFO and chairman of CTG last week might mean the end of the takeover bid to EDP. Beijing prioritizes State Grid's investments, which uphold 25% of REN.

In just a few days, Beijing has managed to dissolve China Three Gorges’ (CTG) key administration figures, starting with Ya Yang, the financial administrator, who was sent to a different Chinese state enterprise. Shortly after, the chairman of CTG was kicked out, with the vice-minister of water supplies being appointed for Lu Chun’s place. These are quite relevant management positions, especially during a takeover bid that involves the investment of billions of euros towards the Portuguese electrical company, EDP. Around here, many believe this will ultimately mean that the Chinese bid’s days are numbered.

The reasons for the changes are still unknown, as the Chinese government hasn’t yet announced any official statement on the matter.

ECO’s sources gathered that this sudden shift in the administration of CTG might mean that the Chinese takeover bid will be withdrawn, as the business deal that started four months ago looses its main figures.

We contacted CTG, and although the company couldn’t promptly answer our queries, there is no official statement claiming that the takeover bid will be withdrawn, and therefore it is not confirmed that the bid will be cancelled. Additionally, it is known through our sources that all tasks regarding the takeover bid are still well underway in all relevant locations, however, this might mean a shift in Beijing’s paradigm from here on.

With a new leadership, the interest in the acquisition of the Portuguese power company might disappear into thin air: CTG’s new leaders might not want to be the main shareholders of EDP.

Another source revealed to ECO that “CTG now has twenty-one reasons to lift their offer, as there are twenty-one jurisdictions composing this takeover bid”. There is now a new one, the same source told ECO.

The reasons for the shift can be even more profound and they are connected with Beijing’s strategy for the electricity industry, whose priority is not EDP (producing electricity) but yet to acquire transportation and distribution infrastructures. On that level, China already counts with State Grid. the largest Chinese enterprise, which owns 25% of REN in Portugal.

In terms of the feasibility of the business deal, it seems like CTG’s plans are not coinciding with Beijing’s strategy for State Grid. The two main figures responsible for CTG’s takeover bid are already out of the picture: Ya Yang was transferred to the National Power Investment Group, where he will be the vice-chairman of finances (even though he is still on the general and supervisory board of the takeover bid). The following day, the Chinese government decided to nominate the vice-minister (Lei Mingshan) to the role of chairman — which in the Chinese governance model means CEO — in a change that completely shows how Beijing wants to be closer to CTG’s future.

Updates on the company’s roles are already on CTG’s official website. 

The decision CTG took, of going through with EDP’s takeover bid, was a surprise for the Chinese government, as the business deal was indeed a risk for state company State Grid.

European regulations, which are transposed into national legislation, claim that there should be a clear separation between the energy producers, and the transport and distribution companies. This would mean that the Chinese government’s company, State Grid, would have to give up REN in order to maintain EDP, as Jean Claude Juncker told MEP Ana Gomes recently. He also noted that Brussels can’t interpose with the decision, it is ultimately the national level who should take the final stance.

Beijing’s priority is State Grid, the national power distribution company, the second biggest company in the world (US$348.9 bn) according to Fortune 500. CTG doesn’t even show up in the last as it’s revenue was merely €11.5 bn. However big CTG is, the difference in weight between these two opponents is colossal.

Also, the takeover bid hasn’t yet conquered all the jurisdictions it should in order to accomplish its official registry. These jurisdictions might impose changes that will disfigure EDPR.

CTG was contacted by ECO, but could not answer in due time.