German utility E.ON today submitted a proposal for takeover of Spanish utilitie Endessa. The offered price is EUR 27.5 per share which implies total value of Endessa of EUR 29.1m and represents 8% premium to yesterday's close of business price EUR 25.48 per share.
The offered price implies 2006F EV/EBITDA of 8.5x representing an 5% premium to CEZ's 2006F EV/EBITDA of 8.1x, which supports our Buy recommendation for CEZ with our fair value estimate CZK 864 per share.The bid also shows increasing efforts to consolidate European power industry, which opens up question of potential CEZ privatization. We assume there are interested parties in the 68% stake in CEZ owned by state however in our opinion there will be no decision made at least until parliamentary elections in June.
Moreover there is no consensus on whether to privatize the whole 68% stake or to sell only a part of it or not to sell CEZ at all.