38
Duke Energy vs. Endesa Spain The 1999 Endesa Chile Face-Off February 25, 2001 Melissa Aguilar Seyi Lawal Osman Mian Alexander Rappaport Chris Thomas
| Date post: | 26-Dec-2015 |
| Category: |
Documents |
| Upload: | gabriel-mckenzie |
| View: | 217 times |
| Download: | 0 times |
Duke Energy vs. Endesa Spain
The 1999 Endesa Chile Face-Off
Duke Energy vs. Endesa Spain
The 1999 Endesa Chile Face-Off
February 25, 2001Melissa Aguilar
Seyi LawalOsman Mian
Alexander RappaportChris Thomas
February 25, 2001Melissa Aguilar
Seyi LawalOsman Mian
Alexander RappaportChris Thomas
AgendaAgenda
Power and Energy in Latin America
Endesa Chile in Dec. 1998
Takeover Battle
Endesa Valuation
Learning Objectives
Update
Power and Energy in Latin America
Endesa Chile in Dec. 1998
Takeover Battle
Endesa Valuation
Learning Objectives
Update
AgendaAgenda
Power and Energy in Latin America
Endesa Chile in Dec. 1998
Takeover Battle
Endesa Valuation
Learning Objectives
Update
Power and Energy in Latin America
Endesa Chile in Dec. 1998
Takeover Battle
Endesa Valuation
Learning Objectives
Update
Strong Growth in Latin AmericaStrong Growth in Latin America
Source: EIASource: EIAGDPGDP Electric DemandElectric Demand
0
1
2
3
4
5
6
7
Argentina Brazil Peru El Salvador
0
1
2
3
4
5
6
7
Argentina Brazil Peru El Salvador
5.15.15.55.5
4.84.8
6.36.35.75.7
5.35.3
3.03.0
4.44.4
Average Annual % Growth (2000-2010)Average Annual % Growth (2000-2010)
USA1.4%USA1.4%
PowerGasPowerGas
Currently In-service
Opportunities in Expanding Interconnectivity
Opportunities in Expanding Interconnectivity
PowerGas
Opportunities in Expanding Interconnectivity
Opportunities in Expanding Interconnectivity
Projected and In-service
AgendaAgenda
Power and Energy in Latin America
Endesa Chile in Dec. 1998
Takeover Battle
Endesa Valuation
Learning Objectives
Update
Power and Energy in Latin America
Endesa Chile in Dec. 1998
Takeover Battle
Endesa Valuation
Learning Objectives
Update
Endesa Chile – 12/1998 – MM US$Endesa Chile – 12/1998 – MM US$
Revenues: 1,718
Net income: 95.6
Revenues: 1,718
Net income: 95.6
Assets
Current: 859
Non-Current: 10,253
Total Assets: 11,112
Liabilities + Book Equity
Current L: 807
Long Term L: 4,941
Minority Interest: 2,627
Book Equity: 2,738
Total L + E: 11,112
11 Billion Dollars in assets!!!11 Billion Dollars in assets!!!
Endesa Chile – 12/1998 – Plants in YellowEndesa Chile – 12/1998 – Plants in Yellow
Chile: Chile: 45 %45 %
Argentina: 20 %
Peru: 25 %
Colombia: 26 %
Brazil: 1 %
Chile: Chile: 45 %45 %
Argentina: 20 %
Peru: 25 %
Colombia: 26 %
Brazil: 1 %
Installed Capacity Ownership Installed Capacity Ownership Per Country:Per Country:
Power and Energy in Latin America
Endesa Chile in Dec. 1998
Takeover Battle
Endesa Valuation
Learning Objectives
Update
Power and Energy in Latin America
Endesa Chile in Dec. 1998
Takeover Battle
Endesa Valuation
Learning Objectives
Update
AgendaAgenda
DUKE ENERGY ENDESA SPAIN
Endesa Spain
En
ersi
s
Chispas
26.2%Other
25.8%
ADR
17%
Pension
31%
Aug 97
En
des
a C
hil
e
Enersis
25.3%
Pension
26.1%
ADR
13.2%
Other
35.4%
OwnershipOwnership StructureStructure
Enersis
25.3%Pension
26.1%
ADR
13.2%
Other
35.4%
DUKE ENERGY
• Purchase Enersis’ stake
• Additional equity capital of 5.1%
• Tender offer for 6.8%
Total Price = $1,638MM
37.2%
PROPOSED DUKE OFFER: PLAN AE
nd
esa
Ch
ile
Endesa Spain
26.2%
Other
25.8%
ADR
17%
Pension
31%
Enersis
25.3%
Pension
26.1%
ADR
13.2%
Other
35.4%
ENDESA SPAIN BLOCKS OFFER
Increase control to 64%
64%
Endesa Spain
Enersis
En
des
a C
hil
e
TENDER OFFER
Price = 250 CH$/share
Total price = $2.1B
51%
Enersis
25.3%Pension
26.1%
ADR
13.2%
Other
35.4%
74.4%
PROPOSED DUKE OFFER: PLAN B
DUKE ENERGY
En
des
a C
hil
e
Enersis
25.3%
Pension
26.1%
ADR
13.2%
Other
35.4%
TENDER OFFER
Price = 305 CH$/share
Total price = $1.542B
Additional 29.7%
64%
74.4%
ENDESA SPAIN COUNTERATTACKS
Endesa Spain
Enersis
En
des
a C
hil
e
TENDER OFFER
Price = 275 CH$/share
Total price = $3B
60%
DUKE ENERGY REVISES OFFER
Enersis
25.3%Pension
26.1%
ADR
13.2%
Other
35.4%
74.4%
DUKE ENERGY
En
des
a C
hil
e
Enersis
25.3%
Pension
26.1%
ADR
13.2%
Other
35.4%
TENDER OFFER
Price = 360 CH$/share
Total price = $2.155B
Additional 34.7%
64%
74.4%
ENDESA SPAIN REVISES OFFER
Endesa Spain
Enersis
En
des
a C
hil
e
WHAT SHOULD DUKE ENERGY DO?
WALK AWAY?REVISE OFFER?
Power and Energy in Latin America
Endesa Chile in Dec. 1998
Takeover Battle
Endesa Valuation
Learning Objectives
Update
Power and Energy in Latin America
Endesa Chile in Dec. 1998
Takeover Battle
Endesa Valuation
Learning Objectives
Update
AgendaAgenda
Valuation MethodsValuation Methods
Multiples comparison
Comparable acquisitions analysis
Free cash flows to equity holders
Discount rate determination
Cash flow assumptions
Share price calculation
Multiples comparison
Comparable acquisitions analysis
Free cash flows to equity holders
Discount rate determination
Cash flow assumptions
Share price calculation
Operational and Sovereign RisksOperational 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
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
Cost of Capital CalculationCost 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)
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)
Local Currency with Local Inflation Index (Brazil)
Dollar or International Fuel Basis (Chile, Colombia and Peru)
Local Fuel with International Fuel Correlation (Argentina)
Endesa Chile - Revenue / Foreign Exchange RiskEndesa Chile - Revenue / Foreign Exchange Risk
31%
6%
63%
Cost of Capital CalculationCost of Capital Calculation
Argentina Chile Colombia
Currency -- -- --
Expropriation + + +
Demand - - -
Regulatory risk (water) + + +
Environment reg. + + +
Overall weighted cost of capital 14.31%
Argentina Chile Colombia
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 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 Campbell Harvey. Duke Energy did not disclose the discount rate used for this investment (or any other investment) investment (or any other investment)
Free Cash Flow to Equity – Model BasicsFree 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
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 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 methodology and the assumptions above and that follow were made by our presentation teamteam
Free Cash Flow to Equity – Cash Flow AssumptionsFree 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
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
Free Cash Flow to Equity – Share Price CalculationFree 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.
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.
Valuation SummaryValuation Summary
METHOD ESTIMATE (CH $)
Multiples Comparison
80.43 – 213.45
Comparable Acquisitions
168.16 – 283.92
Free Cash Flows to Equity holders
45.67 – 177.38
Strategic ValueStrategic Value
Our valuation estimate implies a strategic value of Our valuation estimate implies a strategic value of Endesa Chile to be up to $1.8 Billion for Duke EnergyEndesa Chile to be up to $1.8 Billion for Duke Energy
ReviseRevise
• Offer within Offer within comparable acquisition comparable acquisition multiple rangemultiple range• Endesa Chile is ideal Endesa Chile is ideal for expanding Latin for expanding Latin AmericaAmerica
Walk AwayWalk Away
• Bidding war reduces Bidding war reduces valuevalue• Other options in Latin Other options in Latin AmericaAmerica• Multi-geographical focus Multi-geographical focus of Duke Energyof Duke Energy
AgendaAgenda
Power and Energy in Latin America
Endesa Chile in Dec. 1998
Takeover Battle
Endesa Valuation
Learning Objectives
Update
Power and Energy in Latin America
Endesa Chile in Dec. 1998
Takeover Battle
Endesa Valuation
Learning Objectives
Update
Learning ObjectivesLearning 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
Valuation
Cost of capital does not necessarily have to be high in emerging market
Multiple country discount rate
Strategic value
Quantitative
Qualitative
Competitive bidding
AgendaAgenda
Power and Energy in Latin America
Endesa Chile in Dec. 1998
Takeover Battle
Endesa Valuation
Conclusion
Update
Power and Energy in Latin America
Endesa Chile in Dec. 1998
Takeover Battle
Endesa Valuation
Conclusion
Update
While many of the early participants left in the recent yearsWhile many of the early participants left in the recent years
Dominion
Reliant
Enron
Southern
CMS
TransCanada
Dominion
Reliant
Enron
Southern
CMS
TransCanada
Duke Energy
AES
Tractebel
Endesa (Spain)
EdP
EdF
Duke Energy
AES
Tractebel
Endesa (Spain)
EdP
EdF
Players who want / are
OUT
Players who want / are
OUT
Remaining players
Remaining players
Duke Energy acquired a strong presence in Latin America Duke Energy acquired a strong presence in Latin America
AcajutlaSalvadorena
AcajutlaSalvadorena
ElectroquilEgenor
Aguaytia
Lima
ElectroquilEgenor
Aguaytia
Lima
Buenos AiresBuenos Aires
CoraniCoraniSao PauloSao Paulo
ParanapanemaParanapanema
MollejonMollejon
HidroelectricaCerros ColoradosHidroelectricaCerros Colorados
San SalvadorSan Salvador
Development Office
Trading Office
Operating Asset
Development Office
Trading Office
Operating Asset
Endesa Spain still has a majority ownership in both Enersis and Endesa Chile, but…
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
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”Source: “O Estado De Sao Paulo”
Endesa Chile ADR price chartEndesa Chile ADR price chart
AcknowledgmentsAcknowledgments
We credit Daniel Jaouiche and Jon P. Vague from Duke Energy for their invaluable contribution to this presentation.
We credit Daniel Jaouiche and Jon P. Vague from Duke Energy for their invaluable contribution to this presentation.
DisclaimerDisclaimer
• All the materials used in this presentation are in the public domain (Company Annual Reports, Press Releases, Statistics, Etc.)
• All the materials used in this presentation are in the public domain (Company Annual Reports, Press Releases, Statistics, Etc.)
