CEZ announced acquisition of majority stakes, 89% and 75% respectively in two Polish power plants, Elcho and Skawina with total installed capacity of 810 MW from PSEG. PSEG reported net cash inflow from the transaction to be USD300m. We estimate CEZ’s total costs of the equity to be EUR298m. Based on 2004 EBITDA of EUR54m and adjusted net debt for 2004 of EUR231m, the transaction would imply an EV/EBITDA of 9.8. The price reflects strong competition of 11 bidders, however, following our discussions with CEZ, 2005 and beyond figures should show a significant improvement, in particular at Skawina power plant. The estimated 2005E EV/EBITDA equals 8.8x and 2006E 7.9x compared with the average of regional peers of 2006E 8.6x and CEZ’s 8.1x. The EV/installed capacity (adjusted for holdings) would equal 0.8x compared with the average of 1.6x and CEZ’s 1.1x (adjusted for the latest acquisition). Should the acquisition be debt-financed, CEZ D/E would increase to 0.28 at the end of 2005 compared to 0.27 at the end of 9M05. In addition, Moody’s rating agency said that CEZ’s ratings will be unchanged after the acquisition. We see the acquisition positively also from the strategic point of view given the proximity to the Czech border allowing for synergies, elimination of competition to CEZ should the power plants be bought by another utility and potential replacement for CEZ ‘s coal power plants, which would have to shut due to coal mining limits and coal reserves in the Czech republic. Therefore, we view the news as positive and reiterate our Buy recommendation.