November 18, 2011 9:24 pm

Edison/EDF: Discussions with Consob focusing on public offer pricing

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French energy company EDF [EDF FP] is in talks with Italian securities regulator Consob on the pricing of a mandatory public offer for Edison [EDN IM], a source close to the situation and a person close to Consob told dealReporter.

EDF began talking to Consob on a potential mandatory bid exemption request for Edison after agreeing a deal that will push its stake above 30%. EDF was planning to make the request on the basis of art. 106, 5, of legislative decree 58/98, which regulates Italian public offers. As there are no legal grounds for EDF to obtain a waiver, the French company’s talks with Consob have now turned to the pricing of a mandatory public offer, the sources said.

EDF, Delmi and its majority shareholder A2A [A2A IM] reached a deal this month on how to divide Edison’s assets after their current shareholder agreement expires on 30 November. According to the terms of the deal, the companies will dissolve Transalpina Di Energia, the holding company through which they hold 61.4% of Edison. Following this transaction, Delmi will hold a 31% stake in Edison and EDF will hold 50% because of its existing additional 19.359% stake.

This would push EDF over Italy’s 30% mandatory bid threshold, forcing it to launch a mandatory public offer under Italian law. The person close to Consob explained that the Italian regulator is already looking into a price level for EDF’s mandatory public offer for Edison. An official price evaluation, however, would need to wait until EDF makes a formal request on the mandatory bid pricing, which is expected by the end of November.

There are three possible pricing calculations, said the person close to Consob. Typically, these would be the highest price paid in the last 12 months, the average trading price over the previous twelve months, or Consob could evaluate a different price that includes a premium.

Price decision complications

Weighing up the pricing of a bid is not straight forward. EDF will pass the 30% mandatory bid threshold through an asset exchange and a put option granted by EDF to Delmi on its stake in Edison, exercisable in three to five years. The person close to Consob noted: “We cannot evaluate the real value of the Delmi put options, which will depend on market performance in three to five years’ time.”

An Italian lawyer added that it would be unusual for Consob to decide offer prices based on a yet to be executed transaction, such as a put option.

Edison’s average trading price over the last 12 months amounts to EUR 0.84 per share. An EDF spokesperson pointed out that the three parties have all ready agreed that any mandatory bid price should not be higher than this average.

However, this price is considered low by Edison’s minorities as it does not include a premium, which opens up the possibility of the third evaluation route. This option is contemplated in the legislative decree 58/98 and is applied particularly in cases where stakes are acquired through derivatives. “In the Edison/EDF case, the Delmi put option could be considered as derivative product, so Consob would in fact have the power to enforce a premium on price,” he explained.

A2A, EDF and Delmi advisors met with Consob on Wednesday to discuss the Edison project. An EDF spokesperson described this as a “first exchange”. The spokesperson pointed out that since EDF has not filed an official exemption request with Consob so far, the request could not have been rejected.

In a high profile case such as this, Consob usually takes between 15 and 30 days to come to a decision following a formal mandatory bid pricing request. This means the 30 November Edison shareholder pact deadline could need to be further extended, the person close to Consob noted.

A person close to A2A said that the mandatory offer issue will need to be resolved before the companies can move forward with their new agreement. Meanwhile, a person close to EDF has said that it hopes to resolve these issues before 30 November, when the current pact expires.

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