Eneva presses ahead with AES Tietê deal

Eneva presses ahead with AES Tietê deal

M&A Equity Capital Markets Energy Electricity Brazil US Latin America

Brazilian power generation company Eneva said Tuesday that it is continuing merger negotiations with AES Tietê following reports in local media that talks had stalled.

"The managements of both companies, together with their advisors, have been meeting in the frequency usual in transactions of this nature and working on the necessary documents for the implementation of the business combination," Eneva said in a securities filing.

Eneva had requested a second meeting on Monday to discuss the terms of a potential tie-up after AES Tietê said the company had not provided "essential information" to evaluate the proposal during a two-hour presentation to executives on March 19.

The Brazilian power generator confirmed in the filing that it has signed a confidentiality agreement with AES Tietê to provide the requested information and hired consulting company Tendências Consultoria Integrada (TCI) to undertake a study of the potential synergies.

TCI is in the final stage of the research and will present its finding to AES Tietê in the coming days, according to Eneva.

Earlier this month, Eneva offered to buy AES Tietê for BRL6.6 billion ($1.27 billion) with BRL2.75 billion in cash and the rest in shares. It also acquired 0.5% of AES Tietê for BRL33.9 million so it can attend shareholder meetings ahead of a potential takeover.

Eneva approached AES Tietê with a hostile takeover proposal on March 1 and set a deadline of April 30 to conclude the merger.

In a separate filing on Monday, Eneva said it had considered financing the transaction with local bonds, but it now expects to take out bank loans to cover the acquisition because the coronavirus outbreak has caused the market to turn. Later, however, it could refinance the acquisition in the local bond market, it added.

"It is to be expected that, at this moment, the company elects to use traditional credit lines with financial institutions, maintaining the loans until the conditions of the Brazilian capital market become more attractive and allow better conditions for possible refinancing," Eneva said.

A tie-up between Eneva and AES Tietê could create the second largest private energy company in Brazil with 6.1 GW in installed capacity and BRL5 billion in annual revenues.

AES owns 24.4% of AES Tietê, while BNDESPar, the investments division of the national development bank BNDES, has 28.4% and the state-owned power company Eletrobras has 7.94%. Other shareholders own 39.3% of AES Tietê.

Cambuhy Investimentos and BTG Pactual each own 23% of Eneva, while the asset management firm Atmos Capital owns 5.01%. The remaining 49.1% belongs to other shareholders.