An obligatory buyout offer to TGK-10 (RTS:TGKJ) shareholders, made by Fortum Russia B.V. on April 29, is to expire on July 18, 2008. The buyout price stands at RUB 111.8 (USD 4.83) per share, up by 2.5% over the closing price on MICEX on July 15, 2008.
The Finnish Fortum concern earlier won an auction for the UES-held TGK-10 shares the state is eligible for in UES reorganization by offering the highest price for the shares of RUB 111.8 per share. The price paid values TGK-10 at USD 767 per kilowatt of installed capacity. Fortum has repeatedly stated its intention to buy 100% in the genco. The TGK-10 BoD recommended to accept the Fortum offer.
We also recommend that TGK-10 shareholders take advantage of the buyout offer, or, as an alternative, sell their shares on the open market before July 18, 2008. To begin with, the buyout price values the company at USD 818 per kilowatt of capacity, given its debt, against the average market price for TGKs of USD 514. Secondly, the practice of buyout offers to genco shareholders has revealed that quotations for genco shares tend to fall down once a buyout offer’s validity expires. The gap is due to strategic investors’ willingness to pay a premium for control in the purchase of a majority stake in a genco, which is incorporated in the buyout price. Finally, we believe that TGK-10 shares are overvalued.
We estimate the fair value of TGK-10 (RTS:TGKJ) at USD 3.13 per share, which corresponds to SELL recommendation.
260
0.376
