Vattenfall assets at too high a price?

Two of Poland's energy giants may have overpaid for the Swedish firm's Polish subsidiaries

Swedish energy company Vattenfall AB has agreed to sell its Polish assets for a total of zł.7.6 billion to two state-controlled Polish energy firms.

Natural gas monopolist PGNiG will buy Vattenfall’s heat and power company, Vattenfall Heat Poland (VHP), based in Warsaw, for zł.2.96 billion. Power utility Tauron, meanwhile, will acquire Vattenfall’s power distribution company, Górnośląski Zakład Elektroenergetyczny (GZE), in southwestern Poland, for zł.4.6 billion.

Although the management boards of both PGNiG and Tauron came out with upbeat statements when the news was announced, analysts and markets did not appear so enthusiastic.

Both transactions were above market prices, according to a number of experts WBJ spoke to.

A promise kept

According to Paweł Burzyński, analyst at Bank Zachodni WBK’s brokerage house, PGNiG’s decision to buy VHP was based on a promise it made to its majority shareholder – the State Treasury – that it would enter the heating sector.

“Since entities left for sale [in the heating sector] are few and far between, they were desperate to fulfill this promise and ended up overpaying for VHP,” said Mr Burzyński.

He added that while the Treasury may be happy with PGNiG’s purchase, minority shareholders could be worried, especially in light of the firm’s plans to acquire more companies. This could have a negative impact on PGNiG’s future dividend payouts, he said.

“PGNiG will probably want to acquire [utilities] Energa or Enea which ... will cost much more than VHP,” Mr Burzyński added.

‘Stunningly high’

Paweł Puchalski, another analyst at DM BZ WBK, meanwhile, said that Tauron has overpaid for GZE and that benefits the company might be able to gain from the transaction appear limited.

Mr Puchalski said his firm expected Tauron to pay zł.2.5-3 billion for GZE, adding that, “GZE’s assets fit Tauron perfectly, but the pricing is stunningly high. I see only a limited upside originating from the synergies.”

Although the acquisition makes sense from a business point of view, as it should decrease Tauron’s operating risk in the short term, Tauron’s share price will still underperform the WIG20, Mr Puchalski said.

The share prices of both Tauron and PGNiG fell after the transactions were an-nounced.
As WBJ went to press, Tauron’s share price was zł.5.25, down 0.94 percent since the day the deal was announced. PGNiG’s stock price was at zł.4, up 3.62 percent.