FRANKFURT Potential buyers of E.ON's (EONGn.DE) 46.65 percent stake in Uniper (UN01.DE) not only have to factor in a premium but also a compensation for a sizeable tax charge E.ON incurs if a bidding process triggers a deal before 2018, analysts and sources said.
Shares in Uniper, the power plant and energy trading unit E.ON spun off last year, continued their gains on Thursday, boosted by a report that Finland's Fortum (FORTUM.HE) was considering a bid for the stake.
E.ON, which declined to comment, previously said it would not sell its remaining holding before 2018, but stiff competition among interested parties could trigger a deal already this year, people familiar with the matter said.
"Any sale or agreement to sell executed before 2018 would trigger substantial tax liabilities for E.ON, which we estimate to be in the 0.5-1 billion euros ($0.6-1.1 billion) range - not an insignificant sum considering the Uniper stake is worth about 2.8 billion," Bernstein senior analyst Deepa Venkateswaran said.
Any bidder willing to buy the stake would also have to make an offer for all of Uniper based on Germany's takeover laws, bringing the total bid volume to as much as 7.6 billion euros, not factoring in a premium that is common in M&A processes.
"In others words, financing a deal which would be equivalent to over 50 percent of Fortum's current market cap would be challenging," analysts at Jefferies wrote. Based on Thursday's share price, Fortum's market value stood at 12.8 billion euros.
Fortum, whose CEO earlier this year said he was striving for a sizeable deal this year, has said it could spend more than 1 billion euros on generation consolidation in Europe and 1 billion on widening its city solutions scope.
E.ON is expected to accept cash only to boost its equity, defined as the value of its assets after deducting liabilities, which stood at just 1.1 billion euros at the end of March, a ninth of that at key rival Innogy (IGY.DE).
Sources told Reuters earlier that Fortum was interested in certain assets of Uniper, most notably its hydroelectric power plants, making an offer for the whole group less likely.
Uniper has a range of operations from hydroelectric, coal- and gas-fired plants to storage assets and trading floors, and holds stakes in gas pipelines, LNG terminals and nuclear plants across Europe.
(Additional reporting by Jussi Rosendahl in Helsinki, editing by Pritha Sarkar)