MOL announced that on 30 July 2007 it signed an agreement to purchase 100% of Italiana Energia e Servizi (“IES”) after winning a 6-month long competitive auction process. The purchase price is in line with EV/EBITDA multiples in relevant precedent transactions and is in line with MOL’s downstream long term return target of 16%. The exact purchase price will be calculated based on a balance sheet to be prepared as of closing and is subject to several adjustment items. The final purchase price will be disclosed after closing, also in conformity with the confidentiality undertakings in the transaction documents. The closing of the transaction is subject to anti-monopoly approval and is expected to happen in Q4 2007.
IES is an Italian refining and marketing company, which owns the 2.6 mtpa Mantova refinery with a favourable location in the middle of the industrialized North-Italian region. The refinery processes heavy crude oil supplied via a 124km long pipeline owned by IES from the Marghera Port, it has a Nelson Complexity Index of 8.36 and had a utilization rate of 96% in 2006. IES Group currently has 165 retail stations (of which 30 are company owned) located mainly in the supply radius of the refinery. The products meet the current EU standards of 10 ppm gasoline and 50 ppm diesel. Investments to comply with 2009 product specifications (10ppm diesel) are currently underway. The refinery yield is oriented towards middle distillates at 47% of the current output, while the light distillate yield stands at 17%. IES reported EUR 98 million EBITDA on EUR 1,295 million sales in the fiscal year ending on 30 June 2006. Its net profit was EUR 43 million during the same period. IES had a net debt of EUR 309 million as of June 2006.
Through a development programme with CAPEX of EUR 130 million in the next 5 years we intend to increase the operational capacity of the refinery to 3 mtpa with a corresponding increase in the crude pipeline capacity.
Our view: Press reports that the total purchase price is EUR 800m including the takeover of EUR 309m debt. This implies EV/EBITDA of 8.2x for the transaction, while P/E comes at 11.4x. Multiples suggest to us that MOL paid a fair price for IES. From strategic perspective, however, it is not yet obvious for us what synergies MOL sees with the Italian company which is relatively far from its existing downstream assets. The planned capacity expansion is seemingly reasonable, but given the relatively high gearing of IES (some 60%) according to our preliminary information MOL might need to put further money into the Italian company.
According to the information provided by MOL the rough SOTP value of IES’ EV could be close to the reported purchase price. We value the refining capacity at EUR 748m (using the 18m US$/kbpd valuation for 57 kbpd capacity) and at EUR 43.8m the retail business (using US$ 2m per station for 30 COCO stations), which together results in EUR 792.7m. Please note that company also owns 135 DODO stations and the 124km long pipeline, which also should be added to our SOTP valuation.