Nicholas Watson in Prague -
The seemingly unstoppable march of Czech utility CEZ and its sidekick J&T Group toward sowing up the Czech electricity market is one step closer after International Power caved into pressure from the two firms to halt the tender for its Czech assets 24 hours early, thus preempting a rival bid from Czech Coal, sources say.
"We received a preemptive offer and we pursued it in order to maximise shareholder value," a spokesperson for International Power told bne, referring to the Â£738m offer from J&T for the 363-MW Opatovice coal-fired combined heat and power plant, as well as a 49% stake in Prazska Teplarenska, a district heating business, which in turn owns 100% of Energotrans, the 352-MW combined heat and power plant that is Prazska Teplarenska's primary heat supplier. J&T said the deal will be followed by an agreement with CEZ to sell the stake in Prazska teplarenska. CEZ could not on its own bid for all the Czech assets of International Power because of competition concerns.
When asked whether it might not have better maximised shareholder value if International Power had in fact waited for all the bids to come in by the July 1 deadline, the spokesperson refused to comment further.
According to industry sources, International Power had every reason to believe that several more bids would have been made for the assets - E.On and EnBW were widely reported to be interested. However, the biggest bid would surely have come from Czech Coal, which currently supplies the Opatovice and Energotrans power stations and which CEZ seems to be doing its utmost to put out of business. By taking over International Power's assets, J&T with CEZ can now supply the Opatovice plant from their Mibrag coal mine joint venture.
The Â£738m offered by J&T and CEZ was certainly attractive and should've alerted International Power to how much the firms wanted the assets (nearer Â£500m was the figure being touted), making their purported threat to walk away from the tender unless the UK firm accepted their deal rather hollow. The spokesperson refused to comment on what conditions J&T and CEZ had set in their "pre-emptive offer."
However, Czech Coal does not appear to be taking this lying down, saying in a statement it would challenge the sale. "Czech Coal will file a complaint with the Office for the Protection of Competition and the European anti-monopoly office against the conclusion of this transaction, which would significantly strengthen the dominant position of the buying side on the relevant markets," the statement said.
The spokesperson for International Power said the firm was confident the sale would legally "achieve the necessary clearances." Perhaps not.
The battle between CEZ/J&T and Czech Coal is a very basic one over trying to establish a monopoly position in the Czech power market - there are three main players in the market, so removing Czech Coal would allow the two allies to carve up the market between themselves.
In a neat summary of how "A monopoly is born", Fleet Sheet's "Final Word" column lays it out thus:
1) Czech Parliament passes a rider giving CEZ favorable access to carbon credits.
2) International Power, which must now pay more for its own credits, sees the value of its Czech assets plummet.
3) J&T buys the assets on the cheap.
4) J&T gives notice that it will cease to use coal from Czech Coal to fire Opatovice power plant, formerly owned by International Power.
5) J&T sells International Power's stake in Prazska Teplarenska to CEZ.
6) CEZ cancels Czech Coal's contract to supply Prazska Teplarenska's Energotrans plant.
7) J&T builds a coal warehouse and gives notice that Czech Coal will no longer supply nearby Elektrarna Komorany.
7) J&T and CEZ strike a deal with the SZDC rail-line operator and begin importing coal from their Mibrag JV for supplying Komorany and Opatovice.
8) The EU imposes a negligible antitrust fine.
9) Czech Coal, its customers gone, is brought to its knees.
10) CEZ buys Czech Coal's mines on the cheap.
11) Parliament extends the mining limits at CEZ's new mines.
12) A vertical monopoly is born.
Send comments to The Editor
bne IntelliNews - The Visegrad states raised a chorus of objection on November 10 as the UK prime minister demanded his country's welfare system be allowed to discriminate between EU citizens. The ... more
bne IntelliNews - Following a smorgasbord of acquisitions in late summer, China Energy Company Limited (CEFC) is eyeing yet another small Czech purchase, with food ... more
Benjamin Cunningham in Prague - Even as the Czech governing coalition remains in place and broadly popular, tensions between Prime Minister Bohuslav Sobotka and Finance Minister Andrej Babis remain ... more