Just over three years ago, Iberdrola, the Spanish utility, spun off 20 per cent of its renewable energy subsidiary, the world’s largest wind farm operator. Outside investors who bought in paid €5.30 a share. Last week, after seeing the shares consistently trade below their offer price, the Spanish company said it would buy back the shares. It will pay €3 a share.
“This is a great deal for Iberdrola shareholders, but not for shareholders [in Iberdrola Renovables],” says Alberto Gandolfi, an analyst at UBS. “Iberdrola sold at the top, bought the company back later with a more established asset base and less execution risk.”
Investors will receive both cash and shares in the more liquid Iberdrola, thereby gaining exposure to its other operations, as well as the renewables business. Nevertheless, those who backed the offer are still being offered a low value exit.
The decision by the Spanish utility comes after a sector-wide underperformance. The industry has been buffeted by factors including the financial crisis, regulatory uncertainty and a sharp drop in demand for power. Shares in Iberdrola Renovables’ peers, Portugal’s EDP Renováveis, and France’s EDF Energies Nouvelles have all fallen below their flotation prices.
The poor performance of the sector was also one of the main reasons why Enel, the Italian utility, had to reduce the flotation price of its subsidiary, Enel Green Power, last autumn. And last month EDP Renováveis reported that full-year net profits had dropped by almost a third as financing costs for its debt rose.
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