Intl Power Share Discussion Threads

[jeffian] 13/12/2010 15:30

Gone a bit quiet here recently and share price drifting a bit too. Is it just a case of waiting for the outcome of the General Meeting on 16/12 or is the excitement over?

[jeffian] 02/12/2010 15:16

I don't quite read it like that. As at 30/6/10, IPR had net assets of around £4.8bn and debts around the same (100% gearing). The pro-forma accounts for the enlarged Group as at the same date show net assets of £17bn and net debt of £10.8bn, so GDF Suez doesn't come with 'no' debt but certainly substantially reduced debt allowing both headroom to manoeuvre for future acquisitions and a better credit rating which will reduce the cost of borrowing.

"14. Dividend Policy of Enlarged International Power
Enlarged International Power will target an earnings per share payout ratio of 40 per cent., consistent with International Power's existing dividend policy. It is expected that Enlarged International Power will continue to declare an interim dividend in each year of an amount which is equal to 35 per cent. of the previous year's full-year dividend."

[jacks13] 02/12/2010 14:44

Jeffian
The first paragraph is saying that the GDF parent group will remove the outstanding debt (and cash) from the balance sheet of GDF Suez as at 1 Jan 2009.
The second paragraph says that cash will be provided for the special dividend and that this cash injection is balance sheet neutral.
So this seems to be saying that GDF Suez comes to the merger with no debt and no cash but with its assets intact. IPR enters the merger with its pre-existing assets and liabilities.
Is this how you read it?
Seems too good to be true provided that the earnings on GDF Suez's asset's are at least on a par with IPR's. If the earnings of the enlarged group are pro rata per share less than IPR's present level then the dividend may be lower (or be maintained but at a lower dividend cover).
Do you have any projections for anticipated earnings of the enlarged group?

[jeffian] 02/12/2010 11:30

No, I think we're OK, jacks13. This is the full text of the relevant bit -

"For the purpose of the pro forma combined income statement intra-group loans of c5,625 million (£4,608 million at 30 June 2010 exchange rates) have been assumed repaid as at 1 January 2009, funded by the Cash Injection of c5,351 million (£4,384 million) outlined above and existing cash balances of c274 million (£224 million at 30 June 2010 exchange rates). Therefore, the pro forma combined income statement adjustment reflects the decrease in financial expenses of c135 million (£121 million), corresponding to the saving in intra-group interest expense for the year ended 31 December 2009 (at an interest rate on borrowings of 2.4 per cent.) on the debt extinguished, and a decrease in financial income of c3 million (£3 million) on cash balances used to repay intra-group debt (at an interest rate on cash balances of 1.2 per cent.). The consequential impact on income tax for the year is an increase of c8 million (£8 million).

In addition to the elements of the Cash Injection noted above, £1,404 million is to be contributed by the Wider GDF SUEZ Group for the purposes of funding the Special Dividend, further details of which are found in paragraph 4 of Part 1 (Letter from Sir Neville Simms, Chairman of International Power plc) of this Circular. This element of the Cash Injection is deemed to have decreased the net debt of the Enlarged International Power Group, with effect from 1 January 2009. This has the impact of decreasing the pro forma financial expenses. This impact is offset by a symmetrical increase of the financial expenses as the payment of the Special Dividend is also deemed to have taken place on 1 January 2009. On the pro forma statement of net assets, this element of the Cash Injection for the funding of the Special Dividend is reflected as an increase in cash."

[jacks13] 02/12/2010 11:16

jeffian. Your fears may still be well founded. Wherever the cash comes from then within the constraints of international accountancy rules GDF will be able to move both assets and liabilities onto the new balance sheet as it wishes and the final indebteness will profoundly influence the company's future. If debt-interest payments are high then shareholder earnings will be that much lower and even if the 40% payout ratio is maintained the dividend may not amount to much. The share price would then suffer.

JHE. Sounds like a good idea, I may do the same. Anything in the 475p region would convince me I think!

[jeffian] 01/12/2010 19:27

jacks13,

"If on the other hand it is paid from the external (to GDF Suez) resources of the parent company as some kind of 'wedding gift' then it will not burden NewIPR's balance sheet."

I have now found the relevant bit in the Circular (note 4 to the Pro Forma Combined Statement of Assets of the Enlarged International Power Group on page 284) and that is exactly what is happening, so my fears on that score are unfounded and I'm sorry for starting that hare running.

[jhe] 01/12/2010 19:04

Jacks13 - I was based my figures on post announcement. This was because I didn't think that the SD would be built in immediately and I still don't think it is fully built in. If and when we get the dates firmed up then I believe we will see a flurry of buys from punters wanting a piece of the action which should see an increase in the share price I also believe that once this goes XD then the price will drop accordingly. All IMHO.

Jeffian - I seem to recall reading that the SD was coming from GDF, but I could well be wrong! At the end of the day this reverse merger will be set up by whichever means is best for GDF. The amount of debt transfered will I believe that which gives the best tax efficiencies in the respective countries, along with whatever GDF's 5 year plans are.

At the moment my plans are to sit it out until just before the XD date and sell up. I believe this will give me maximun return. I can't get enthusiastic about GDF owning 70% of the company.

[jacks13] 01/12/2010 17:12

jeffian
As I read it GDF (the parent company) are merging the assets of one of its subsidiary companies (GDF Suez) with the assets of IPR. The combined value of the assets is anybody's guess but the shares in issue will grow by a factor of 70/30 or 2.33 times. At the moment the future earnings, likely dividends and balance sheet indebteness are difficult to fathom even by the analysts, I reckon.
Your take on it may well be correct because we don't know how the special dividend will be funded. If it is taken from the balance sheet of GDF Suez in the form of a cash disposal or an increase in indebteness then it does come from the putative coffers of NewIPR.
If on the other hand it is paid from the external (to GDF Suez) resources of the parent company as some kind of 'wedding gift' then it will not burden NewIPR's balance sheet.
In truth I don't know which it is but I still think that at the current share price the market is attaching no cash value to the merger.

[jeffian] 01/12/2010 12:12

I still don't understand why anyone thinks the Special Divi adds value? If this were a takeover, the bidder may say 'OK, I'll let you pay shareholders a SD of 92p and I'll still pay you £x', in which case shareholders are getting an extra 92p on top. In the case of a merger, the merged assets are worth £x but if they pay a 92p SD, this is not additional money on top, it is simply transferring cash from its own resources (cash reserves or bank facilities) to its shareholders with a consequent diminution of its own assets. It isn't 'fresh' money from an outside source; we are simply being paid out with our own money!

[jacks13] 01/12/2010 10:55

JHE
When the offer of a combination of assets was announced after close of business on 16th July the shares had closed at 316.80p. They're currently c406p.
It still looks to me that the current premium over the pre-announcement price is merely the c92p special dividend. There is nothing in the current price for the anticipated benefits that will flow from the merger.
I think the market is saying that either the benefits will not be realised or the merger will be blocked.
Put another way, the market is not now prepared to pay more for the share than the July 16th price plus 92p.

[jhe] 26/11/2010 16:05

I'd be surprised if all of the 92p is built in yet.

My thoughts 4 Nov'10 - 14:53 - 873 of 959 edit

Post takeover announcement we were at 370. If the 92p special divi is being built in then we should see 460 ish IMHO. Centrica seems to have faded away - but who knows?

[jacks13] 26/11/2010 15:30

Is it the case that the recent spike up in price is the anomoly?
If you take the pre-merger announcement price, 317p, add 92p it comes to 409p.
What we may be seeing is the return of the share price to a more rational level, i.e. back to it's old price.
This could presage a lost vote! Interesting.

[optomistic] 24/11/2010 10:57

Roll on the sweetener, I don't see them pulling the plug, gone too deep and cost too much...but WDIK... I didn't think of them not having enough votes :-/

[praipus] 24/11/2010 10:14

My guess is its dawning on some that GDF havent got enough votes and will have to either

1. pull the plug or
2. sweeten the offer or
3. buy enough votes.

When the French bought all our water companies they allways bought more shares on bad news.

[optomistic] 24/11/2010 09:04

My guess is that it's because it's too late for anyone else to come into the fight now, no need to support the price anymore.

[jeffian] 23/11/2010 19:31

Well it could be because of fears of € collapse, FTSE off 100 pts, Dow off 170pts, most stocks a sea of red........

Just guessing, mind!

8-)

[jeddicat] 23/11/2010 19:06

Are we down again today (-12.10p), and yesterday by -3.61p because of the Irish/Euro problem, because we went up c+17p last Thur/Fri, or is there something else???

[jacks13] 23/11/2010 11:11

I can't see the institutions getting in the way of this merger. They're not going to risk seeing the share price collapse back to where it was and jeopardise their own performance bonuses.
From GDF's standpoint it is not at all unlikely that they could walk away now and pick the company up later with a bid in the region of 450p, not much more than where it is now.
The only scenario that would alter this is if there is a bidder waiting in the background and they have let this be known to certain players.

[apad] 23/11/2010 10:13

The notion that any bunch of Directors are on their shareholder's side is risible.
Angst based on the motives of Directors is a waste of days.

[haggaj] 23/11/2010 09:21

My wife thinks it might be futile but she is registering a NO vote just to make the directors aware she does not believe they have her best interests at heart. Never know, if BR, L&G and SL think similarly we might force a rethink along the lines that jacks13 aludes to above.

[jeffian] 22/11/2010 20:14

I've just received the full circular today. It makes an attractive case for the corporate structure of the two merged entities - lower gearing, better borrowing terms, synergies (to be realised over 2-6 years!), better spread of generating sources and customer pricing on a global basis - but it still hardly makes a compelling case for current shareholders IMHO. The best they can say is that "Existing shareholders in International Power will benefit from this value creation through their continued shareholding in Enlarged International Power". In other words, 'stick with us and we think your shares may go up over the next 6 years or so'. Well maybe they will, but we've given up control of our company so there's not much we can do about it if they don't and I can't believe that GDF will have the interests of the minority at heart once the deal goes through.

[jacks13] 22/11/2010 19:48

Praipus
When the offer of a combination of assets was announced after close of business on 16th July the shares had closed at 316.80p. They have closed tonight at 433.20p, a 37% increase.
At the current price the market would want I suppose a minimum of a further 20%, bringing an offer price in the order 520.00p.
Thats probably a bit too rich for GDF, but faced with having the deal sunk by the institutional shareholders would they walk away or pay up. It's not as though they're broke.
There is the possibility that Black Rock, Legal & General, and Standard Life et al have had/will have the conversation.

[praipus] 19/11/2010 15:06

Black Rock, Legal & General, and Standard Life Investments are not mentioned in the RNS. Does that mean they are voting against?

Is that an IPR share certificate underneath his left arm?

[jeffian] 19/11/2010 14:59

Come on, mate, where are you?!