January 20, 2014 / 6:25 PM / 6 years ago

Exclusive: GDF eyes deals of up to $20 billion after failed Talisman bid - sources

LONDON (Reuters) - French utility GDF Suez SA GSZ.PA had takeover approaches for Canada-based Talisman Energy Inc TLM.TO rebuffed late last year as it seeks acquisitions worth as much as $10 to $20 billion outside Europe, banking and industrial sources said.

President and Chief Executive of Talisman Energy Hal Kvisle addresses shareholders during the company's annual general meeting in Calgary, Alberta, May 1, 2013. REUTERS/Todd Korol

GDF’s financial advisers have reviewed a number of sizeable possible acquisitions, including U.S.-based utility AES Corp (AES.N), according to two people with direct knowledge of the situation, as Chief Executive Gerard Mestrallet eyes a transformational deal before his retirement in 2016.

Acquiring Talisman in a $17 billion deal including debt would have been a game-changer for GDF, propelling it into upstream operations and strengthening its presence in fast-growing parts of South America and Asia.

Yet the two sides struggled to agree on terms and GDF’s latest attempt with a written offer for part of Talisman in early December was rejected by the latter’s board. The two sides have not been in contact since, the sources said.

“GDF offered a low-ball price for Talisman’s best assets, so there was a very small chance it would work out”, said one of the sources.

“It’s dead,” said a second source with direct knowledge.

GDF Suez, Talisman Energy and AES declined comment.

A deal for Talisman would have involved GDF’s Chinese partner CIC CIC.UL, which also focuses on exploration and production and would likely have committed to finance future capital investments given its greater financial firepower.

U.S.-based AES, meanwhile, is still in GDF’s sights given its footprint in places such as Colombia, where GDF does not operate, the sources said.

CIC’s position as AES’s second-largest shareholder with 8 percent of its capital could also ease financing and help get support for a deal, sector bankers said.

CIC was not immediately available to comment.

GDF had considered buying AES in the past but went instead for its British rival, International Power, in 2010, creating an electricity producer worth $30 billion.

“GDF would love to have AES’s Latin American unit AES Gener but so far it has not been up for sale.”, said a sector banker. “GDF is however less keen on AES’s U.S. regulated operations.”


Even with CIC’s support, some bankers believe acquiring AES or Talisman could prove a financial stretch, as GDF is under pressure from rating agencies to cut its net debt, which stood at nearly 30 billion euros at the end of September.

“This would be crazy at the moment from a financial perspective. It would have a significantly negative impact on GDF’s credit rating,” one banker said.

“AES is a very good deal on paper and one that GDF will very likely do in the coming five years, but at times of crisis and given their current leverage, that’s just not feasible,” the banker added.

Others believe the financing could be achieved by paying in shares, raising local debt for each of AES’s assets or selling equity on the markets.

“A $15 billion deal is totally feasible for GDF. Banks are really hungry because there have been very few deals in the sector this year, so they’d be very keen to back a big name like GDF,” said a sector banker close to GDF.

“They know they’ll get their money back. GDF has been good at selling assets,” said the sector banker.

For this person, the real sticking point around AES is its complex legal structure. “Due diligence would be very difficult. But if GDF could get AES at a good price, they would probably do it.”

Beyond Talisman and AES, GDF could also be interested in smaller portfolios of assets in Latin America worth between $5 and $10 billion, sector bankers said.

Duke Energy Corp’s (DUK.N) Latin American assets for instance could be a good fit for GDF because they would increase its market share in growth countries such Argentina, Chile, Brazil, and Peru and bring cost synergies. Funding such a deal, worth about $6 billion, would not stretch GDF’s finances.

Enel SpA’s (ENEI.MI) power operations in Chile, Argentina, Colombia, Peru and Brazil, which it acquired when it took control of Spanish rival Endesa in 2011, are also among the possible targets, one banker said.

The Italian utility is not planning to sell any of these assets at the moment and committed to invest 6.9 billion euros in the region by 2017. But some bankers believe it could be forced to if it doesn’t make much progress with other non-core disposals in Europe as it needs to cut debt.

Duke Energy and Enel declined comment.

Some bankers believe any sizeable GDF deal could be financed through a share sale that would dilute France’s 36 percent stake. But reducing the state ownership in GDF would require a law change, making any such move unlikely before France’s regional March elections.

A large acquisition could also give GDF an opportunity to cut its dividend, which is increasingly burdening the group’s finances, bankers said.

GDF has the most generous dividend policy among CAC-40 .FCHI companies, with an average 8.7 percent return, far above the 4.9 percent median of sector peers, according to Thomson Reuters data.

Duke Energy has 4.5 percent dividend yield and AES 1.12 percent.

($1 = 0.7324 euros)

Editing by David Holmes

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