PEP powers up control

The bid vehicle of PEP has still not been able to get control.

In reality, however, it’s more reflective of valuation uncertainties, upside and downside, among the various renewable energy firms that generate a significant portion of their earnings from the carbon credit trade driven by state-dictated schemes. The Copenhagen debacle in December has only increased these uncertainties.

On the positive side, companies like ENE hold considerable allure for private equity firms (among others). This is evidenced by an earlier indicative offer of A$2.80 ($2.58) per share last year by Archer Capital, also of Australia, plus an additional bid by an international infrastructure fund for ENE landfill gas generation assets in the UK and France.

Why? First, because there are comparatively few of them up for grabs. And more importantly because private equity, with its three-to-five-year timeline, is very aware that, present valuation uncertainties aside, carbon trading-rooted businesses like ENE can only expand going forward.

ENE specifically holds a range of landfill and coal mine gas generation plants across much of the developed world, meaning it is very well positioned for this future growth, depending on how the global politics regarding global warming work out.

At the same time, with the present uncertainties keeping valuations vague for the present, acquisitions at less than fundamental value become possible.

This explains the reluctance of ENE’s remaining principal shareholders, Investors Mutual, BT Investment Management and First Samuel, which together control 22%, to sign off on Greenspark’s bid. Rather they commissioned an independent report that valued the company at between A$3.17 ($2.90) and A$4.09 ($3.77) per share, and thus have continued to maintain that Greenspark’s bid is too low as we go to press.

As to why New Zealand’s Infratil opted to take Greenspark’s offer, the Kiwi company had long come to see ENE as too many miles of hard road, mainly because it was unable to exert influence on ENE’s future direction and decided that the proceeds from its investment would be better deployed in a bid to buy Shell’s service station business in its own country.

Yet another particular attraction of ENE for a private equity bidder is its A$500 million ($460 million) of debt that is non-recourse, being instead secured against individual projects. In the current environment where debt is constrained by banks in terms of LBO deals, debt that can stay on the target’s books after a takeover only adds to its attractions.

Conversely, the latest reports say that Greenspark – which says it will now seek board representation – has noted an A$17.4 million ($16 million) financing facility that might have to be settled if control changes.

So the roiling continues on this litmus deal; stay tuned.

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• Topics
• Buyouts
• Buyout
• Australasia
• Infrastructure
• Pacific Equity Partners