Citigroup joins the Chinese advisory board of EDP’s takeover bid

China Three Gorges has hired a new financial advisor to assist with their transaction, as the Chinese shareholder raises concerns about the offer they’ve made to EDP as it sees that by virtue of the recent developments the operation might not get authorized by the USA.

They previously counted exclusively with the strategic guidance of the Bank of America Merril Lynch, but it was not enough support for a deal that comprises an offer to EDP’s subsidiary, EDP Renováveis (EDPR), and as such, Citigroup jumps in to give the Chinese some financial support.

Citigroup’s financial advisors have participated in the last meetings the Chinese group had with the advisors from the other banking institution and together will evaluate and develop strategies regarding the takeover bid process.

It seems clearer now: the Chinese have underestimated the difficulty of the takeover bid, and are now reinforcing their financial strategy team with yet another American bank in the basket.

It also seems that it will be essential for the success of the business deal with EDP to bet on discarding EDPR’s American-owned shares.

China Three Gorges’ focus right now is to take the US out of their way in this takeover bid. The Asian group already took over 29% of the utility company, and they are indeed considering an asset disposal as the last resource – specifically the American assets in the company, which were estimated to cost €6,5bn.

In order to obtain the majority share, China Three Gorges will have to get authorizations from several countries – one of them in the hands of the Committee on Foreign Investment in the United States (CFIUS), which has proved quite effective in blocking Chinese investment in the energy sector.

CTG’s offer depends on the USA being crossed off the list – and this is what they are working on currently. The last resource option of selling the American shares for €6,5bn is not their best one and the Chinese have been envisaging a stock swap with two other stakeholders in the energy sector, Iberdrola, and Engie. Their goal? To have an extra bargaining chip in their offshore wind power energy plan.

CTG success depends on their acquisition of at least 50% + 1 of EDP, offering in their takeover bid €3,26 per share. EDP controls 83% of EDPR, which means that with EDP on their hands China Three Gorges will also have the majority over Manso Neto’s company. 

Remember, however, that the Chinese have delivered another takeover bid, this time over to EDPR, proposing them €7,33 per share.