1 / 38

Duke Energy vs. Endesa Spain The 1999 Endesa Chile Face-Off

Duke Energy vs. Endesa Spain The 1999 Endesa Chile Face-Off. February 25, 2001 Melissa Aguilar Seyi Lawal Osman Mian Alexander Rappaport Chris Thomas. Agenda. Power and Energy in Latin America Endesa Chile in Dec. 1998 Takeover Battle Endesa Valuation Learning Objectives Update.

floyd
Download Presentation

Duke Energy vs. Endesa Spain The 1999 Endesa Chile Face-Off

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Duke Energy vs. Endesa SpainThe 1999 Endesa Chile Face-Off February 25, 2001 Melissa Aguilar Seyi Lawal Osman Mian Alexander Rappaport Chris Thomas

  2. Agenda • Power and Energy in Latin America • Endesa Chile in Dec. 1998 • Takeover Battle • Endesa Valuation • Learning Objectives • Update

  3. Agenda • Power and Energy in Latin America • Endesa Chile in Dec. 1998 • Takeover Battle • Endesa Valuation • Learning Objectives • Update

  4. Average Annual % Growth (2000-2010) 6.3 5.7 5.5 5.3 5.1 4.8 4.4 3.0 USA 1.4% Electric Demand GDP Strong Growth in Latin America Source: EIA

  5. Opportunities in Expanding Interconnectivity Currently In-service Power Gas

  6. Opportunities in Expanding Interconnectivity Projected and In-service Power Gas

  7. Agenda • Power and Energy in Latin America • Endesa Chile in Dec. 1998 • Takeover Battle • Endesa Valuation • Learning Objectives • Update

  8. Endesa Chile – 12/1998 – MM US$ • Revenues: 1,718 • Net income: 95.6 11 Billion Dollars in assets!!!

  9. Endesa Chile – 12/1998 – Plants in Yellow • Chile: 45 % • Argentina: 20 % • Peru: 25 % • Colombia: 26 % • Brazil: 1 % Installed Capacity Ownership Per Country:

  10. Agenda • Power and Energy in Latin America • Endesa Chile in Dec. 1998 • Takeover Battle • Endesa Valuation • Learning Objectives • Update

  11. DUKE ENERGY FACE OFF ENDESA SPAIN

  12. Endesa Spain Aug 97 Enersis Enersis 25.3% Pension 26.1% ADR 13.2% Other 35.4% Endesa Chile OwnershipStructure Chispas 26.2% Pension 31% ADR 17% Other 25.8%

  13. PROPOSED DUKE OFFER: PLAN A DUKE ENERGY Endesa Chile • Purchase Enersis’ stake • Additional equity capital of 5.1% • Tender offer for 6.8% • Total Price = $1,638MM 37.2% Enersis 25.3% Pension 26.1% ADR 13.2% Other 35.4%

  14. ENDESA SPAIN BLOCKS OFFER Endesa Spain Increase control to 64% Enersis 64% Endesa Chile Endesa Spain 26.2% Pension 31% ADR 17% Other 25.8% Enersis 25.3% Pension 26.1% ADR 13.2% Other 35.4%

  15. PROPOSED DUKE OFFER: PLAN B DUKE ENERGY Enersis 25.3% Pension 26.1% ADR 13.2% Other 35.4% Endesa Chile 74.4% TENDER OFFER Price = 250 CH$/share Total price = $2.1B 51%

  16. ENDESA SPAIN COUNTERATTACKS Endesa Spain Enersis Enersis 25.3% Pension 26.1% ADR 13.2% Other 35.4% Endesa Chile 74.4% TENDER OFFER Price = 305 CH$/share Total price = $1.542B 64% Additional 29.7%

  17. DUKE ENERGY REVISES OFFER DUKE ENERGY Enersis 25.3% Pension 26.1% ADR 13.2% Other 35.4% Endesa Chile 74.4% TENDER OFFER Price = 275 CH$/share Total price = $3B 60%

  18. ENDESA SPAIN REVISES OFFER Endesa Spain Enersis Enersis 25.3% Pension 26.1% ADR 13.2% Other 35.4% Endesa Chile 74.4% TENDER OFFER Price = 360 CH$/share Total price = $2.155B 64% Additional 34.7%

  19. REVISE OFFER? WALK AWAY? WHAT SHOULD DUKE ENERGY DO?

  20. Agenda • Power and Energy in Latin America • Endesa Chile in Dec. 1998 • Takeover Battle • Endesa Valuation • Learning Objectives • Update

  21. Valuation Methods • Multiples comparison • Comparable acquisitions analysis • Free cash flows to equity holders • Discount rate determination • Cash flow assumptions • Share price calculation

  22. Operational and Sovereign Risks • Risk factors in the discount rate • Key sovereign risks: exchange rate, expropriation, demand, water rights and regulatory risk for environment • Weights for risk allocation based on electricity generation capacity in Argentina, Chile and Colombia • Risk factors in the cash flows • Key operational risks: drought, rationing, distribution loss, forced outages

  23. Cost of Capital Calculation • Adjustments to ICCRC discount rates • Individual adjustments to Argentina, Chile and Colombia discount rates with best and worst case scenarios • Upward adjustments (creeping expropriation, water rights and environmental regulation) • Downward adjustments (exchange rate and demand)

  24. Endesa Chile - Revenue / Foreign Exchange Risk 6% 31% 63% Dollar or International Fuel Basis (Chile, Colombia and Peru) Local Fuel with International Fuel Correlation (Argentina) Local Currency with Local Inflation Index (Brazil)

  25. Cost of Capital Calculation ArgentinaChileColombia Currency -- -- -- Expropriation + + + Demand - - - Regulatory risk (water) + + + Environment reg. + + + Overall weighted cost of capital 14.31% The cost of capital of 14.31% was calculated using the method suggested by Professor Campbell Harvey. Duke Energy did not disclose the discount rate used for this investment (or any other investment)

  26. Free Cash Flow to Equity – Model Basics • Valued Endesa Chile’s assets as a one-year, steady-state perpetuity • Demand and production characteristics for the electricity market limit revenue growth to inflation • Isolates potential cash flows from current amount of assets apart from future strategic value Duke Energy did not disclose the method used for it’s Cash Flow Valuation. The methodology and the assumptions above and that follow were made by our presentation team

  27. Free Cash Flow to Equity – Cash Flow Assumptions • Load factor - production per capacity • Captures production lapses due to weather, forced outages, rationing and distribution loss for each country • Adjusted 1998 revenues by mean load factor and summed country revenues

  28. Free Cash Flow to Equity – Share Price Calculation • Held most 1998 costs constant • FCFCE perpetuity, grown at inflation, discounted at cost of equity • Book value of minority interest deducted • Resulting equity value divided by number of shares and multiplied by end-of-1998 exchange rate.

  29. Valuation Summary

  30. Strategic Value • Walk Away • Bidding war reduces value • Other options in Latin America • Multi-geographical focus of Duke Energy • Revise • Offer within comparable acquisition multiple range • Endesa Chile is ideal for expanding Latin America Our valuation estimate implies a strategic value of Endesa Chile to be up to $1.8 Billion for Duke Energy

  31. Agenda • Power and Energy in Latin America • Endesa Chile in Dec. 1998 • Takeover Battle • Endesa Valuation • Learning Objectives • Update

  32. Learning Objectives • Valuation • Cost of capital does not necessarily have to be high in emerging market • Multiple country discount rate • Strategic value • Quantitative • Qualitative • Competitive bidding

  33. Agenda • Power and Energy in Latin America • Endesa Chile in Dec. 1998 • Takeover Battle • Endesa Valuation • Conclusion • Update

  34. Dominion Reliant Enron Southern CMS TransCanada Duke Energy AES Tractebel Endesa (Spain) EdP EdF Players who want / are OUT Remaining players While many of the early participants left in the recent years

  35. Duke Energy acquired a strong presence in Latin America Mollejon Acajutla Salvadorena San Salvador Electroquil Egenor Aguaytia Lima Corani Sao Paulo Paranapanema Buenos Aires Development Office Trading Office Operating Asset Hidroelectrica Cerros Colorados

  36. Endesa Spain still has a majority ownership in both Enersis and Endesa Chile, but… February, 19, 2002 • "Endesa Spain has just announced that they are freezing their investments in Latin America, and that instead it will focus its investments in Spain and Europe...“ • Later Endesa Spain amended its plans to freeze its Capex in Brazil Source: “O Estado De Sao Paulo”

  37. Endesa Chile ADR price chart

  38. Acknowledgments • We credit Daniel Jaouiche and Jon P. Vague from Duke Energy for their invaluable contribution to this presentation. Disclaimer • All the materials used in this presentation are in the public domain (Company Annual Reports, Press Releases, Statistics, Etc.)

More Related