MADRID/LONDON/MILAN (Reuters) - Private equity funds CVC [CVC.UL] and KKR (KKR.N) are studying a bid for a sizeable stake in Endesa (ELE.MC), the Spanish subsidiary of Italian energy group Enel (ENEI.MI), sources with knowledge of the matter said.
Seven sources told Reuters the buyout funds were in early stage talks to submit a bid to debt-laden Enel, and they could team up in a consortium that might also include infrastructure fund Macquarie (MQG.AX) and Canadian pension funds.
Citigroup is advising the funds, two of the sources said, speaking on condition of anonymity as the matter isn’t public.
Enel declined to comment, but sources close to the company said it had no interest in selling part or all of its 70 percent stake in Endesa, which has a market value of around 13 billion euros ($14.5 billion). Endesa also declined to comment.
The sources said the review by the funds started several weeks ago and any offer may not be made until later this year, depending in part on the outcome of Spanish elections due by the end of the year.
“An offer is currently being prepared but nothing has been presented to Enel yet,” said one of the sources who is directly involved in the process.
Another source said the funds could find it hard to buy all of Endesa but would likely try to form a consortium and buy a stake that gave them management control. “It has to be a meaningful stake,” said the source, also involved in the talks.
CVC, KKR, Macquarie and Citigroup declined to comment.
Endesa shares were up 2.7 percent to 17.65 euros at 7.15 a.m EDT, while Enel shares were 2.19 percent higher at 4.29 euros.
The first source said the funds’ interest had picked up after the expiry of a so-called lock up period in May, during which Enel had been barred from selling Endesa shares following its listing of a 22 percent stake in the Spanish firm last year.
Funds have been eyeing Endesa’s stable revenues, generous dividend and relatively low debt ratios for some time and are optimistic they can persuade Enel to sell this time around.
“Beforehand, we used to get from Enel a ‘many thanks for the interest but we don’t want to sell’... However, right now, we see them more receptive,” said the first source.
Disappointing first-quarter results from Endesa and uncertainty over future Spanish government policy toward utilities could make Enel consider a sale, this source said.
State-controlled Enel, one of Europe’s most indebted utilities, is racing to divest non-core assets to help cut debt and maintain its investment-grade credit ratings.
But it has repeatedly said it would stick with Endesa.
“There is ... no willingness to sell shares of Endesa or plants of Endesa in any five years time horizon,” Enel CEO Francesco Starace said at an investor day earlier this year.
A source with knowledge of Enel’s thinking said talk of a sale was “nonsense”.
Under Spanish law, if Enel’s stake in Endesa falls below 70 percent, it would lose tax benefits worth around 220 million euros a year, according to analysts’ calculations, meaning a small stake sale would make little sense.
While Starace once said there were “no sacred cow”, Endesa is a key source of cash.
Yet analysts say Enel is at a crossroads in Spain, as it nears break-even on the around 40 billions euros investment made to build up the stake in Endesa between 2007 and 2009.
Enel last year integrated Endesa’s Latin American assets, worth about 8.25 billion euros, booked a special dividend from the Spanish unit of 6.3 billion euros, and made 3 billion euros from the 22 percent stake sale.
Adding around 5 billion euros in ordinary dividends since 2007, according to analysts estimates, and the market value of the remaining 70 percent stake, the Italian group could recoup an estimated 35 million euros as of today.
CVC has been active in Spain in recent years and has a stake in infrastructure firm Abertis, while KKR bought a third of Spain’s Acciona Energia Internacional in 2014.
Macquarie last year won an auction for E.ON’s EONG.DE Spanish and Portuguese operations.
Additional reporting by Freya Berry in London, Jose Elias Rodriguez in Madrid and Alberto Sisto in Rome; Writing by Julien Toyer; Editing by Keith Weir and Mark Potter