Duke Energy intends to extend its international reach by acquiring Endesa-Chile, which controls 10,000 MW of generating capacity in Argentina, Brazil, Chile, Columbia and Peru. (see map) This acquisition of the largest electric generator in Latin America and the world`s largest private hydroelectric generator would establish Duke as a dominant player in the Latin American power market.
Duke Energy`s subsidiary, Duke Energy International (DEI), intends to make concurrent cash tender offers in the United States and Chile for shares of common stock and American Depository Shares (ADS) of Endesa-Chile, representing 51 percent of the outstanding shares-a deal valued at U.S.$2.1 billion.
The U.S. tender offer will be for shares and ADSs of Endesa-Chile and will be open to U.S. and non-Chilean persons only. The Chilean offer will be for shares only and will be structured as an auction on the Santiago Stock Exchange.
DEI will offer to purchase up to 3,680,947,436 shares at 250 Chilean pesos per share for the Chilean auction, representing about 45 percent of Endesa-Chile, and up to 501,947,400 shares (including ADS purchases) at 7,500 Chilean pesos per ADS (each representing 30 shares) for the U.S. offer, comprising about 6 percent of Endesa-Chile.
The offers will be conditional upon shareholder approval and effectiveness under applicable Chilean law of an amendment to Endesa-Chile`s bylaws increasing the percentage of Endesa-Chile shares that may be owned and voted by a single shareholder (or group of shareholders), from 26 percent to 65 percent.
Bruce Williamson, DEI`s president and CEO, said Duke`s position as a financially strong company with an AA credit rating allows general corporate funding of this transaction-its largest international purchase so far, in terms of dollar amounts. He said, “We hope to have the transaction completed by early in the second quarter.”
He said the proposed 51 percent stake is the right level for Duke because “it allows us to best contribute our skills and resources to grow at Endesa. It is important to retain local country participation.” Forty-nine percent interest will be “held in Chile, in the public and in Latin America,” said Williamson. “Having those local shareholders alongside us is a very important thing.”
He said, “Endesa-Chile`s desire for growth complements Duke`s Latin America strategy perfectly. Together, Endesa-Chile and Duke Energy would become the first truly regional power generation and energy trading and marketing force in Latin America, creating an unparalleled basis for future growth across all forms of energy in the region.” Asked if Duke is considering other proposals, Williamson said, “It would be premature to comment on any other opportunities in Latin America.”
A potential conflict of interest lies in the proposed transaction. Duke holds a 24 percent stake in Nueva Renca, a 370 MW, gas fired plant, and Endesa`s competitor-Gener, Chile`s second largest electric power generator-holds a 51 percent interest. Williamson said, “We are a minority shareholder in Renca. It won`t be a problem to divest or restructure to resolve conflict, but we don`t anticipate any.”
Earlier this year, Duke took a “wait and see” stance regarding its planned tender offer. Shareholders of Chile`s Enersis, Latin America`s largest private power provider, were then deciding if they wanted to sell their 25.3 percent stake (valued at $950 million) held in Endesa-Chile.
The board of Enersis recommended in December that shareholders sell their Endesa-Chile stake, purporting that electric generation does not add value to Enersis` electric distribution. Endesa-Spain, which owns about 32 percent of Enersis, opposed the proposal, arguing that the loss of Endesa-Chile`s generation capabilities would weaken Enersis` influence in the marketplace.
The Enersis shareholders decided to sell their Endesa-Chile stake on Feb. 4. Endesa-Spain intends to hold a tender offer in the United States and Chile for shares of common stock and ADSs representing 32 percent of Enersis.
Williamson said Duke has made no agreements with Endesa-Spain about the tenders. He said, “The acquisition of a controlling interest in Endesa-Chile, which is focused on power generation assets, is also complimentary to the proposed acquisition of a controlling interest in Enersis, which is focused on energy distribution.”
If both are successful, Endesa-Spain`s tender for 32 percent of Enersis would trump Duke`s acquired 25.3 percent stake.