High risk of $3.6 billion Enea sale failing

By Patryk Wasilewski and Agnieszka Barteczko

WARSAW (BestGrowthStock) – There is a high risk the ongoing sale of Polish state-controlled utility Enea (ENAE.WA: ), worth as much as 11 billion zlotys ($3.6 billion), will fall apart, market sources familiar with the situation told Reuters.

Poland, which has stepped up its sell-off drive this year to help troubled public finances, wants to sell its 51 percent stake in the country’s No.3 utility for over 5.6 billion zlotys, but the buyer would have to also buyout minority shareholders.

The deal was almost sealed when the ministry awarded exclusivity to the country’s richest man Jan Kulczyk in late October, banking sources told Reuters. But the process took a twist when the ministry invited Czech Elektrycky a Prumyslovy Holding and French utility EDF (EDF.PA: ) back to the negotiating table, delaying the transaction’s deadline to end-March.

“The chances are 50-50 for deal to go through, but the decision has to be made quick. If it drags on to next year it will fall apart,” one of the sources said. “If it does it will be Kulczyk who buys it.”

The treasury has found itself in a tight spot in the negotiations lately, the sources said, as neither of the two new bidders is willing to offer conditions as generous as Kulczyk.

One market source even said that the sole purpose of bringing back EDF and EPH to the table was to put more pressure on Kulczyk, but that tactic may backfire.

If the ministry doesn’t make a decision quickly there is a high risk the Polish businessman will drop his offer as his patience is wearing thin and transaction costs of keeping necessary funds on stand-by run high, the sources told Reuters.

Kulczyk, according to the sources, still values Enea at over 25 zlotys per share, keeping Enea shares glued to roughly 23.5 zloty level since early November, 39 percent above this year’s lows.

Kulczyk’s offer is expected to still be the best, both in terms of price offered and additional conditions like investment guarantees and lockup on the bought stake, even after rivals were invited back.

EDF, the only serious competitor for Kulczyk according to sources, is not willing to pay as much nor guarantee some of the investments into the coal-fired power plant in Kozienice, making it practically unacceptable for the ministry.

“During these times it is impossible to win a privatization process not offering the best price and additional conditions at least at par with other participants,” a source said.

Some sources said dropping the exclusivity rights signals Kulczyk, who has a long history of buying companies from the state to later resell them to foreign investors, might be an unacceptable buyer for the government.

If that is the case, the government’s only real option is to let the current tender fail, as picking a lower offer, at least on paper, would likely to be challenged by other bidders and would make the government look biased toward a single bidder.

The government, which sold a minority stake in Enea to Vattenfall (VATN.UL: ) in 2008, already once tried to sell the controlling stake but talks with Germany’s RWE (RWEG.DE: ) fell apart because the sides could not agree on price.

($1=3.035 Zloty)

(Additional reporting by Piotr Bujnicki and Adrian Krajewski; Editing by Jon Loades-Carter)

High risk of $3.6 billion Enea sale failing