Power Deals : étude sur les fusions-acquisitions dans le secteur de l'énergie (mars 2012)


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Power Deals : étude sur les fusions-acquisitions dans le secteur de l'énergie (mars 2012)

  1. 1. www.pwc.com/powerdeals Power Deals 2012 outlook and 2011 reviewMergers and acquisitionsactivity within the globalpower and utilities market
  2. 2. Contents Introduction 3 Report highlights 4 2012 deal outlook: economic signals hold the key 6 2011 deal review: deals blow hot and cold 10 Deal places: a focus on markets worldwide 14 North America 16 Europe 18 Asia Pacific 20 Contacts 22 Methodology and terminology Power Deals includes analysis of all global crossborder and domestic power utilities deal activity. It is the latest in our Power Deals annual series. We include deals involving power generation, transmission and distribution; natural gas transmission, distribution and storage; and energy retail. Deals involving operations upstream of these activities, including upstream gas exploration and production, are excluded. Renewable energy deals are covered in our sister publication, Renewables Deals and therefore excluded. The analysis is based on published transactions from the Dealogic ‘M&A Global database’ for all power and gas utility deals. It encompasses announced deals, including those pending financial and legal closure, and those which are completed. Comparative data for prior years may differ to that appearing in previous editions of our annual analysis or other current year deals publications. This can arise in the case of updated information or methodological refinements and consequent restatement of the input database. Deal values are the consideration value announced or reported including any assumption of debt and liabilities. The Russian Federation is treated as a geographic entity in its own right. We have considered Asia Pacific as a region including Australasia, except if otherwise explicitly stated. All presented numbers of deals are inclusive of those deals with no reported value, unless specified.2 Power Deals 2012 outlook and 2011 review
  3. 3. IntroductionWelcome to Power Deals, PwC’s annual analysisof deal activity in the power utilities sectors.We publish our outlook on the prospects fordealmaking in the year ahead. We also take alook at what’s been happening in the last 12months and in the different main marketsaround the world. The report is the latest in our annual We also highlighted the interest of series on dealmaking. It examines Chinese buyers which has now activity in all parts of the sector except manifested itself in a number of large for renewables. In our companion deals. report, Renewables Deals, we separately look at the trends and Looking ahead, much will rest on the dynamics in the renewable energy continuing eurozone crisis story and deal sector. Together the two reports the extent to which economic growth provide a comprehensive global signals can provide the confidence to analysis of M&A activity in the power support eurozone strategies. The crisis utilities sector. has halted some of the strong rebound in deal flow that we saw earlier last This year, for the first time, we open year. The underlying fundamentals for our report with our discussion of the a resumption in deal flow remain in outlook for the year ahead and place but confidence in the wider identify some of the main themes we economic outlook will be pivotal to expect to be at work. In our last whether it happens or not. report, we correctly forecast the release of pent-up US deal demand into the big deal flow we saw in the previous 12 months.Manfred Wiegand John McConomy Andrew McCrossonGlobal Power & Utilities Leader Partner US Partner UK Power & Utilities Transaction Services Power & Utilities Transaction Services Power Deals 2012 outlook and 2011 review 3
  4. 4. Report highlights Deal pickup is put on hold A mix of divestment, repositioning and The power deal world market growth imperatives continue to make for potentially buoyant power heads in new and different deal conditions. But a pickup remains directions stalled as concerns about the eurozone crisis and economic growth persist. In the past, Europe and the US were the Deal values had been heading back dominant influence on deal activity. Now towards those seen around the 2006-7 two other important influences are coming peak of M&A activity. As we enter 2012 right to the fore – the involvement of very they are nearer the credit crunch lows active Asia Pacific investors and the pace of experienced in 2009. Two important growth markets such as Brazil. We’re also confidence factors – economic growth seeing markets move at different speeds signals and the regulatory treatment of and in different directions. Growth in recent big US deals – will hold the key emerging markets is contrasting with to the timing and extent of 2012 deal recession in Europe. These different speeds flow. will provide opportunities for buyers able to exploit cross-continental value opportunities. Any softening of European valuations, for example, will further heighten the interest of Asia Pacific buyers, already helped by exchange rates. Chinese companies are stepping up their ‘go abroad’ strategies. The US and Europe also provide contrasts. Often, in years when Europe power deal value totals are up, the US is down and vice versa. These opposite directions were very notable in 2011. Target deal value in North America more than doubled year on year to US$107.5bn while European target value plummeted 43% (US$30.5bn) to stand at US$39.8bn.4 Power Deals 2012 outlook and 2011 review
  5. 5. New partnerships and astrengthening of financialbuyers’ visibilityGiven the scale of capital required andmarket constraints, we are likely to seemore examples of companies exploringalternative options for the big investmentsneeded in power infrastructure. One ofthese is more strategic partnerships withorganisations that have got large pools ofcapital, such as sovereign wealth funds.Another is joint venture project andinvestment relationships across the energy Energy affordability willchain, such as between upstream gas anddownstream utilities. Also, financial become an important dealbuyers are likely to compete more strongly factoron power deals investments. Their 2011share of deal value was at its lowest for Deal makers and investors willfive years for a variety of reasons increasingly need to weigh up price and(see page 13). But we expect them to be social pressures in the utilitiescompetitive in the market in 2012 marketplace. Concerns about energybolstered by additional pools of capital prices in some European countries areseeking investment opportunities. creating a ‘trilemma’ in the triangle that has to be balanced between affordability, sustainability and security of supply. This is adding to the social pressures on governments. Any weakening of the drive to meet the 2020 low carbon and renewable energy targets could disrupt investment assumptions in Europe. Meanwhile, in the US, wider social and job factors are also at play. State regulators are increasingly moving towards a wider ‘net benefit’ standard rather than the previous ‘no harm’ approach to deal approvals. Power Deals 2012 outlook and 2011 review 5
  6. 6. 2012 deal outlook: economic signals hold the key Strong momentum in power deal value has been stalled by The eurozone crisis market uncertainty. A big upswing in total deal value in the first The crisis in the eurozone will continue to half of 2011 came plummeting downward in the second half as cloud the deal environment in 2012. The the sovereign debt crisis and market volatility put the brakes on uncertainties that intensified in July and dealmaking. But the underlying fundamentals for a resumption August 2011 put a brake on deal in deal flow remain in place. A mix of divestment, repositioning momentum. Worries about a further and market growth imperatives continue to make for recession, constraints on financing and potentially buoyant conditions. fears of a worst case collapse caused dealmakers to reassess their options. Some As 2012 gets underway, these contrasts are form of eurozone realignment and also reflected in different economic growth sovereign debt default seems possible. A outlooks in the different world markets. climate of ‘rolling uncertainty’ looks set to While Europe considers the extent of its continue into much of 2012 in the absence recession, signals in the US look more of clear sustained growth signals or more positive and growth in the Far East and dramatic policy shifts. A collapse or South America continues, albeit at a lower confidence-draining realignment process pace. These regional contrasts will cannot be ruled out. But if economic continue in 2012. Indeed, different market growth signals turn positive then ‘rolling speeds will provide opportunities for uncertainty’ could transition into a buyers able to exploit cross-continental ‘growing confidence’. The strength of any value opportunities. Similarly, market major pick-up in deal activity will hinge on volatility could provide opportunities for these economic uncertainties. Some deals deal leverage. Euro weakness against the will flow from the crisis itself. While debt yen and renminbi is giving an advantage to markets remain constrained, raising capital Japanese and Chinese buyers. Looking from disposals will remain an important ahead, we expect a number of existing priority. Also, further government sell-offs, themes and new ones to assert themselves. following the lead of Portugal’s auction of These include: EDP, are possible in countries such as Ireland and Italy (see Europe section). Economic growth signals will decide whether there is a transition from ‘rolling uncertainty’ into ‘growing confidence’ or whether worse events unfold.6 Power Deals 2012 outlook and 2011 review
  7. 7. Different market speeds will provide opportunities for buyers able to exploit cross-continental value opportunities.Divestments to raise ‘Buy versus build’ will remain New sources of strategiccapital strength the mantra for US generation financingThis is a strong theme in Europe which will Generation asset transactions are likely to Utility companies have a relativeintensify in 2012. The major European remain a theme in the US. Current market advantage over companies in some otherpower utilities need to strengthen their conditions are such that it is more sectors when it comes to bank financingbalance sheets to make the big investments economic to buy rather than build. Supply and the debt markets. But given the scalerequired in their core markets while demand imbalances mean that a number of capital required and market constraints,retaining the flexibility to seek out growth of gas-fired power stations are now less we are likely to see more examples ofmarkets. The German government’s economic to run, bringing down valuations companies exploring alternative options.decision, in the wake of the Fukushima to a point where they are attractive versus One of these is strategic partnerships withemergency, to phase out nuclear power by the cost of adding new build capacity. organisations that have got large pools of2022 has increased the pressures being capital such as sovereign wealth funds. Infaced by the country’s power giants, RWE 2011, for example, Iberdrola agreed aand Eon. Both were involved in significant Environmental legislation US$2.8bn 5.8% equity stake with Qatarasset disposals in 2011 and are committed will spur M&A Holding, a subsidiary of the Qatarto further sales in 2012. Other companies, sovereign wealth fund. GDF Suez issuch as Vattenfall, are committed to A capital push as a result of environmental involved in a partnership with Chinesedisposals as they focus on consolidation in imperatives is becoming a major feature of sovereign wealth fund China Investmentcore markets or on core parts of the fuel the US power deals market. Companies Corporation (see Asia Pacific section).mix or value chain. have been adjusting portfolios and As well as sovereign wealth funds, other spending capital on upgrades in counterparties might include hedge funds, anticipation of the recently enacted, and infrastructure funds, pension funds andUS power companies’ quest for currently court stayed, Cross-State Air Chinese state-owned enterprises.scale and balance will continue Pollution Rule, designed to curb air pollution in states downwind from coal-2011 saw a rush of big deals as US fired power stations, and the new Mercurycompanies sought to gain enhanced and Air Toxics Rule. These changes arebalance sheet strength, rebalance expected to lead to additionalregulated versus non-regulated returns announcements of closure of coal-firedand address territorial and fuel footprint plants in cases where the necessaryissues (see deal review and North America compliance upgrades would besections). These deal imperatives will uneconomic. Environmental policy willcontinue into 2012 and there remains also have an effect on generation inscope for a continued flow of deals in the Australia with the implementation of aUS. But the strength of such deal flow will carbon price on the highest emitters frombe dependent on the stance of the various July 2012.state utility regulators. As we move into2012, the big 2011 US deals are still to getover the finish line in terms of regulatoryclearance. Companies will be looking The need for balance sheet strength andclosely at the reaction of regulators beforeweighing up their next moves. capital programme funding will remain a strong factor driving non-core asset disposals in 2012. Power Deals 2012 outlook and 2011 review 7
  8. 8. The Fukushima emergency and the impact on the nuclear power market has increased the pressure for asset disposals. New kinds of partnerships East-west deal momentum Post Fukushima pressure across the energy chain will continue to strengthen Tokyo Electric Power Company (Tepco) Joint venture project and investment Chinese buyers will continue to compete faces enormous fundraising pressure relationships are well established in the actively for assets in western markets. following the Japan nuclear emergency. As independent power generation market Cheung Kong Infrastructure (CKI), the the company and the government continue involving companies in different parts of investment vehicle of Hong Kong to consider all of the available strategic the energy chain – for example, between billionaire Li Ka-shing, has been an active options, asset sales have started and are International Power and Mitsui. We are bidder for UK network assets. Having likely to accelerate in 2012. The pressure likely to see this spread to more parts of bought EDF’s UK network business in wave from Fukushima has spread far and the power sector. During 2011, RWE held 2010, CKI missed out on a similar purchase wide. The German government’s decision talks with Gazprom about the possibility of of Eon’s in 2011. Elsewhere, China Three to phase out nuclear power by 2022 has a joint venture covering gas and coal-fired Gorges Corporation won the auction for a increased the challenges being faced by generation plant in Germany, the UK and stake in Energias de Portugal, giving it the country’s power giants, RWE and Eon. the Netherlands. They failed to reach a access to the growth market of Brazil. The The additional expenses of an accelerated conclusion. Such a move would have given company beat competition from Eon and phase-out and the costs of replacement Gazprom access to downstream generation from Brazilian companies. State Grid generation capacity come on top of already and eased balance sheet risk for RWE. The Corporation of China has also been an large capital expenditure programmes at a prospect of such a move, involving a active bidder. We expect to see further time of economic downturn, lower different pairing, remains a distinct interest from Chinese entities, including electricity margins and pricy gas supply possibility in 2012. the state generating companies, in western contracts. Concerns about the nuclear assets in 2012. generation market were also a factor in EDF increasing its exposure to gas-fired Financial buyers’ profile will generation with its planned takeover of strengthen Italy’s Edison, unveiled at the very end of 2011. Financial buyers, such as infrastructure funds, pension funds and private equity companies, have been relatively quiet during 2011. Several large fund investors were in fundraising mode or were focused on buying infrastructure assets outside the power sector. Others were actively seeking deals but did not reach agreement with sellers. The Canada Pension Plan Investment Board (CPPIB), for example, was reported as a bidder in the recent sales Chinese and Japanese entities are of EDF and Eon UK power network assets. stepping up their ‘go abroad’ strategies. We expect financial buyers to be competitive in the market in 2012 bolstered by additional pools of capital seeking investment opportunities.8 Power Deals 2012 outlook and 2011 review
  9. 9. The role of government Energy affordability worriesbecomes even more pivotal create a ‘trilemma’Power markets continue to tread a Energy prices have become a hot issue insometimes ambiguous line between market some European countries as the cost ofoperation and government direction. decarbonisation bites and the economicGovernments have long moved away from situation puts pressure on customerdirecting demand but are the key influence budgets. Concerns about energy prices areon supply through decarbonisation creating a ‘trilemma’ in the triangle thatpolicies. The scale of the capital spending has to be balanced between affordability,required has led to measures such as feed- sustainability and security of supply andin tariffs and other guarantees of long- adding to the social pressures onterm subsidies playing a pivotal role in governments. Again, this adds to theinvestment decisions. In the UK, electricity uncertainty faced by investors andmarket reform is under consideration as dealmakers. Increasingly, they will need tothe government assesses how the big weigh up the significance of social andcapital spending requirement can best be pricing pressures. Any weakening of thesupported. But delays and questions on drive to meet the 2020 low carbon andoverall market design and specific renewable energy targets could disruptsubsidies are creating another uncertainty investment assumptions.for dealmakers. Weakening of the drive to meet the 2020 low carbon and renewable energy targetsCapital raising could disrupt investment assumptions.constraints in EuropeThe major European powerutilities continue to face significantfuture capital expenditurerequirements. At the same time, Perspective:equity and debt financing hasbecome increasingly difficult. ‘Rolling uncertainty’ – to deal or not to deal?We have conducted an analysis ofleading European power utility It’s tempting to draw parallels between the crisis of 2008-9 and that of 2011-12.companies. It shows that between But there are important differences. The credit crunch had a definite focus, centred2010 and 2011 many companies around the Lehman crash. The current crisis lacks an equivalent ‘big event focus’ –have seen larger share price falls a ‘rear view mirror event’ that can be seen as a turning point. Instead, there isthan the market average. On the ongoing material uncertainty. We’ve called it ‘rolling uncertainty’ in this report.debt side, issuances have declined This makes the deal environment much more difficult. The liquidity landscape isfrom 75.6bn euros in 2009 to fragmented. The time horizon for an easing of debt issuance and bank finance14.6bn euros in 2011 as debt remains uncertain. The wider market conditions for business plan ‘J curves’ cannotmarkets contracted. In addition, be assumed.across the whole European utilitiessector, 15 groups have suffered The advice in the first half of 2009 if it can get done. With the uncertaintydowngrades in 2011 and 30% are was ‘if you don’t have to be in the over how long the constraints willon negative watch or facing market, stay out of the market. Wait a persist, it’s quite a brave bet to stay outdowngrade reviews. This reductionin capital raising options will few months until things improve and of the markets just in the hope thatcontinue to drive divestments by confidence and a sense of calm is things will improve.the major European power restored. Then go with your deal.’utilities. But that all assumes you have a ‘rear Confidence about economic growth, the view mirror event’. European banking system and the ability of governments to have a coordinated In 2012 there is no equivalent. and convincing policy response are all Instead, there is great uncertainty critical if a more optimistic outlook is to about whether things will be better emerge. On the political front, there are or worse in six months time. In this many potential minefields to be environment, perhaps paradoxically, negotiated during 2012, both at the a complete brake on dealmaking inter-governmental level and, makes less sense. If a deal is highly domestically, between parties and with strategic and mission critical, then electorates. The potential for further parties may feel it is worth doing destabilisation cannot be ruled out. Power Deals 2012 outlook and 2011 review 9
  10. 10. 2011 deal review: deals blow hot and cold Power deal value flow had been heading back up towards levels The surge in US dealmaking gave a boost approaching those seen around the 2006-7 peak of M&A to total power deal value. At US$174.4bn, the 2011 worldwide total was up 16% year activity. First half deal value was very strong (figure 1).But the on year with deal numbers down 13% trend reversed sharply in the third quarter of the year. Deal (figures 2 and 3). The focus on domestic value flow fell back down to the levels of the credit crunch lows deal activity continues. Domestic deals, experienced in 2009 and would have stayed there in the last boosted by the flow of US consolidations, three months of 2011 if it were not for the US$37.9bn Kinder accounted for three quarters of the power Morgan/El Paso deal in the US. deal count and total value in 2011 (figure 4). Not only was 2011 a year of two halves but it was also a year of contrasts on either side of the Atlantic. Even before the uncertainties from the European sovereign debt crisis intensified in July and August, the upward growth in deal value was largely coming from a flow of purchases by US power and utility companies. While the US power and utility deal market was blowing hot, Europe was getting a chill. European utility companies were mainly in divestment mode and the big acquisition moves that had buoyed deal totals in previous years were firmly off the table. Figure 1: Quarterly tracking of deals – 2010 and 2011 By value (US$bn) By number 62.8 60 55.4 51.8 50 250 45.6 44.5 205 40 200 172 160 163 30.2 148 30 150 142 141 122 22.9 20 100 11.8 10 50 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011 2010 2011 Note: Due to rounding, values may not sum exactly. Source: PwC, Power Deals10 Power Deals 2012 outlook and 2011 review
  11. 11. Figure 2: All electricity and gas deals by value (US$bn) – 2010 and 2011 2010 2011 Change in 2011 Number Value Number Value % number % valuePower 670 US$150.5bn 583 US$174.4bn (13)% 16%of which: Electricity 573 US$132.0bn 468 US$112.2bn (18)% (15)% Gas 97 US$18.5bn 115 US$62.3bn 19% 237%Note: Due to rounding, values may not sum exactly.Source: PwC, Power DealsFigure 3: Total sector deal activity (US$bn)2011 42 133 174 Crossborder deals Domestic deals2010 46 105 1512009 47 51 982008 74 121 1952007 143 230 3732006 136 163 2992005 56 140 1962004 58 66 1242003 17 26 43 0 20 40 60 80 0 0 0 0 0 0 0 0 0 0 0 0 0 0 22 US$bn 10 12 14 16 18 20 24 26 28 30 32 34 36 38Note: Due to rounding, values may not sum exactly.Source: PwC, Power DealsFigure 4: Crossborder and domestic deals – 2010 and 2011 2010 2011 Number Value % number % value Number Value % number % value Domestic 537 US$105.0bn 80% 70% 436 US$132.8bn 75% 76% Crossborder 133 US$45.5bn 20% 30% 147 US$41.6bn 25% 24% Total 670 US$150.5bn 100% 100% 583 US$174.4bn 100% 100%Note: Due to rounding, values may not sum exactly.Source: PwC, Power Deals Power Deals 2012 outlook and 2011 review 11
  12. 12. 2011 deal review: deals blow hot and cold American deals dominated the top ten New sources of unconventional gas are The combination creates the largest table (figure 5) as US companies moved to transforming the gas sector in the US. natural gas pipeline network in the US. gain scale. The year opened with the They are creating capital investment The two sets of pipeline systems are very announcement of the US$25.8bn merger challenges as well as growth opportunities complementary, mainly serving different between Duke Energy and Progress Energy for gas pipeline operators. The result has supply sources and markets in the US. and was followed by a strong flow of other been a quest for greater scale which was This mega deal follows an earlier contest deals, including a proposed merger exemplified by the decision of Kinder between Williams and Energy Transfer for between Exelon and Constellation and two Morgan (KM) and El Paso (EP) to merge in Southern Union with Energy Transfer’s mega mergers in the gas pipeline sector a US$37.9bn deal which heads our top ten US$9.4bn bid set to deliver another large (see below). It is the first time ever in our table. Both bidder and target have integration of gas pipelines (see North series of power deal reports that all-US upstream exploration and production America section). deals accounted for six out of the ten assets but the deal’s focus is the integration largest deals (figure 5). of EP’s regulated interstate natural gas pipeline assets with KM’s, hence our inclusion of it in Power Deals. Following the closing of the transaction, EP will become a subsidiary of KM with KM intending to sell the exploration and production assets of EP. Figure 5: Top ten – crossborder and domestic deals 2011 No. Value of Date Target name Target nation Acquirer name Acquirer nation transaction announced (US$bn) 1 37.9 16 Oct 11 El Paso Corp United States Kinder Morgan Inc United States 2 25.8 10 Jan 11 Progress Energy Inc United States Duke Energy Corp United States 3 11.2 28 Apr 11 Constellation Energy Group Inc United States Exelon Corp United States 4 9.4 16 Jun 11 Southern Union Co (Bid No 1) United States Energy Transfer Equity LP United States 5 6.5 01 Mar 11 E.ON UK plc United Kingdom PPL Corp United States 6 6.3 27 Dec 11 Edison SpA (30%) Italy Electricite de France SA - EDF France 7 5.6 05 Dec 11 Mid South TransCo LLC (Entergy) United States ITC Holdings Corp United States 8 4.7 20 Apr 11 DPL Inc United States AES Corp United States 9 3.5 22 Dec 11 Energias de Portugal SA - EDP Portugal China Three Gorges Corp China (21.349%) 10 2.9 19 Jan 11 Elektro Eletricidade e Servicos SA Brazil Iberdrola SA Spain (99.68%) Source: PwC, Power Deals12 Power Deals 2012 outlook and 2011 review
  13. 13. The combination of Duke and Progress will We look closer at the other US deals in the The auction was won by China Threecreate the largest US utility group and put North America section. The largest Gorges (CTG) with a bid worth US$3.5bn.the combined company in a better position European deal saw US buyer PPL buy CTG and EDP have announced a strategicto undertake the new construction and Central Networks from Eon. The deal, partnership to become worldwide leadersother capital investment that lies ahead. worth US$6.5bn, was the outcome of an in renewable energy generation, with EDPThe combination will have around 7.1 auction in which PPL saw off competition leading in Europe and the Americas andmillion electricity customers in North from Hong Kong’s CKI. MidAmerican CTG in Asia markets. One of their mainCarolina, South Carolina, Florida, Indiana, Energy Holdings, owned by Warren competitors will be Iberdrola whoseKentucky and Ohio. It has approximately Buffett’s Berkshire Hathaway, was also US$2.9bn purchase of Brazilian57GW of domestic generating capacity reported to be among the interested distribution company Elektro added to itsfrom a diversified mix of coal, natural gas, parties. existing interests in Brazil. Eon’soil, renewable resources, and the largest disappointment at missing out on EDP wasregulated nuclear fleet in the US. The deal continues the trend of network offset at the beginning of 2012 when it divestment by the major power utilities in entered into an agreement to take a 10%Duke and Progress had originally targeted Europe. Eon had acquired Central stake in Brazil’s MPX Energia. The deal isa deal close date by the end of 2011 but Networks as part of its purchases of expected to lead to major investment bythis has now moved back to March 2012 at Powergen and Midlands Electricity in 2002 both parties into new power generationthe earliest. An earlier US$4.3bn merger and 2004. For PPL, the acquisition adds capacity.between NStar and Northeast Utilities, further regulated assets to its existingannounced in October 2010, is also yet to Western Power network business which Financial buyer acquisitions were downclose. This is also the case as we enter 2012 serves adjoining parts of the Midlands, from US$68bn in 2010 to US$28bn inwith the proposed US$11.2bn merger Wales and the south west of England. 2011. At just 16% of total deal value, theirbetween Exelon and Constellation (see share of deal activity was at its lowest forNorth America section). It remains to be European companies have been more six years (figure 6). As we discussedseen whether earlier optimism that this active on divestments rather than earlier, several funds were on the sidelineslatest wave of deals will clear the various acquisitions. EDF’s US$6.3bn takeover of while scheduled fundraising took place orregulatory hurdles will be vindicated. Italy’s Edison, unveiled at the very end of were focused on buying infrastructure 2011, was a notable exception to this (see assets outside the power sector. sections on post Fukushima and Europe). Also, expansion in the fast growing Brazilian market was an important focus for both Eon and Iberdrola. Eon participated in the auction for Energias de Portugal (EDP), attracted in part by its extensive generation and distribution presence in Brazil.Figure 6: Utility deal activity vs financial and other deal activity by value (US$bn) and (% share) 2003 2004 2005 2006 2007 2008 2009 2010 2011 Utilities 26 (60%) 81 (65%) 169 (86%) 247 (83%) 289 (78%) 147 (76%) 70 (71%) 82 (55%) 146 (84%) Financial and other 17 (40%) 43 (35%) 28 (14%) 52 (17%) 83 (22%) 48 (24%) 28 (29%) 68 (45%) 28 (16%)Source: PwC, Power Deals Power Deals 2012 outlook and 2011 review 13
  14. 14. Deal places: a focus on markets worldwide North American bidders and targets provided the majority of Even so, European buyers and sellers power deal value. Bidders from the region accounted for 67% of remained busy, involved in more deals than their North American counterparts, the worldwide total. Targets were not far behind – comprising albeit for smaller values. In another first, it 62% of total value. One in five deals involved a North American was Asia Pacific buyers and sellers who bidder. topped the share of deal numbers. But the biggest year on year change in bidder and It’s the region’s biggest share of worldwide While target deal value in North America target value came in South America, value since the beginning of our Power more than doubled (by 119% or buoyed in part by the US$2.9bn Elektro Deals series in 1999. The highest before US$58.5bn) year on year, European target deal (see deal review). The US$9.1bn that came in 2004, when Exelon’s value plummeted 43% (US$30.5bn) to target value was more than double the US$26bn attempt to buy PSEG (which stand at US$39.8bn. This is the lowest 2010 total and moved total South ultimately failed) and a number of total since 2003 and is less than a quarter American deal value towards the inbound purchases pushed up the region’s of the target value transacted during the US$10.8bn total transacted in 2008. total target deal value to 47% of the peak year of M&A in Europe in 2006. worldwide total. Europe also recorded its lowest share of worldwide power deal value in our series. Figure 7: Deals by continent North America 2010 2011 % change By target value of deals (US$bn) 49.0 107.5 119% By bidder value of deals (US$bn) 50.9 117.0 130% Number of deals By target 110 117 6% By bidder 118 126 7% South & Central America 2010 2011 % change By target value of deals (US$bn) 4.4 9.1 107% By bidder value of deals (US$bn) 2.2 4.2 85% Number of deals By target 39 58 49% By bidder 30 38 27%14 Power Deals 2012 outlook and 2011 review
  15. 15. Europe 2010 2011 % changeBy target value of deals (US$bn) 70.3 39.8 (43)%By bidder value of deals (US$bn) 56.6 29.5 (48%)Number of dealsBy target 190 142 (25)%By bidder 190 149 (22)%Russian Federation 2010 2011 % changeBy target value of deals (US$bn) 6.8 3.7 (45)%By bidder value of deals (US$bn) 6.5 3.7 (44)%Number of dealsBy target 158 101 (36)%By bidder 153 104 (32)%Asia Pacific 2010 2011 % changeBy target value of deals (US$bn) 19.7 14.1 (29%)By bidder value of deals (US$bn) 33.2 16.4 (51)%Number of dealsBy target 160 156 (3%)By bidder 170 156 (8%)Source: PwC, Power DealsFigure 8: 2011 deal percentages by continent(2010 percentages shown in parenthesis)Deal number by target Deal number by bidder Asia Pacific 27% (24%) Asia Pacific 27% (25%) Europe 24% (28%) Europe 26% (28%) North America 20% (16%) North America 22% (18%) Russian Federation 17% (24%) Russian Federation 18% (23%) South & Central America 10% (6%) South & Central America 6% (5%) Middle East 1% (1%) Middle East 1% (1%) Africa 1% (1%)Deal value by target Deal value by bidder North America 62% (33%) North America 67% (34%) Europe 23% (47%) Europe 17% (38%) Asia Pacific 8% (13%) Asia Pacific 9% (22%) South & Central America 5% (3%) South & Central America 2% (1%) Russian Federation 2% (4%) Russian Federation 2% (4%) Middle East 0% (0%) Middle East 2% (1%) Africa 0% (0%) Africa 1% (0%)Source: PwC, Power Deals Power Deals 2012 outlook and 2011 review 15
  16. 16. Deal places: a focus on markets worldwide North America The flow of big deals in the US led to a big increase in electricity The companies expect the deal to gain the target value in the region year on year – from US$39.1bn in 2010 remaining approval in early 2012. EDF had expressed concern that Exelon’s to US$58bn in 2011. The value of gas targets multiplied more nuclear projects would get future priority than fivefold – from US$9.9bn to US$49.5bn. US power and gas over the programmes in EDF’s own nuclear pipeline companies’ moves to broaden and to diversify their joint venture with Constellation. But the businesses are producing one of the biggest periods in US power French company dropped its opposition to M&A. Acquisition of scale has been accompanied by deals to the deal in January 2012 after it reached optimise the amount of revenues covered by regulated returns. agreement to protect the operating independence of the joint venture. The changed gas landscape led to two big The deals involving Duke/Progress and In the only big deal for a target outside gas pipeline integrations with the biggest Exelon/Constellation join the 2010 North America, the quest for a bigger deal of 2011 – Kinder Morgan’s US$37.9bn announced Nstar/Northeast merger which regulated rate base took PPL across the deal with El Paso – taking place soon after is still awaiting full regulatory clearance. Atlantic as it added Eon’s Central Networks Energy Transfer fended off competition The Nstar deal has seen the Massachusetts to its existing UK network business (see from Williams to land a US$9.4bn deal for Department of Public Utilities (DPU) move deal review). A big network deal Southern Union. We discuss these deals in away from the previous ‘no harm’ standard announced at the end of the year will see the deal review section and also later in – that the public interest wouldn’t be ITC, the largest independent electric this section. harmed by a merger approval – onto a transmission company in the US, acquire tougher ‘net benefit’ standard that the Entergy’s transmission networks in a The landmark utilities deal is the proposed merger will provide benefits for customers US$5.6bn deal. Entergy had been facing a Duke/Progress merger which is also and the regional economy. Massachusetts US$400m to US$525m capital investment covered in the deal review section. Close DPU is not alone in adopting this wider programme for the networks in the behind it is Exelon’s proposed US$11.2bn standard. immediate period to 2014. ITC’s merger with Constellation Energy Group. independent transmission business model Also announced in the same month was Exelon is familiar with the difficulties of means that, unlike Entergy which is AES Corporation’s purchase of DPL. At the getting deals over the finish line, notably primarily covered by state regulation, it is time of writing, the AES deal is the only with its aborted 2004 US$26bn bid for regulated by the Federal Energy one that has cleared all its regulatory PSEG which finally had to be abandoned in Regulatory Commission, which has hurdles. DPL remains as a standalone 2006. But its Constellation merger has jurisdiction over interstate transmission. business but gains from the greater gained approval, as the result of further financial strength and operational negotiations, from the State of Maryland, synergies that come from the global AES the City of Baltimore and other parties. business while AES gains presence in one But the deal still requires approval by the of its target growth markets. Maryland Public Service Commission (PSC) and other key regulators. Figure 9: North America deals by target % change in 2011 Value Number Value Number Power US$107.5bn 117 119% 6% of which: Electricity US$58.0bn 92 48% 3% Gas US$49.5bn 25 399% 19% Source: PwC, Power Deals16 Power Deals 2012 outlook and 2011 review
  17. 17. The gas supply glut in the US, arising from The changed gas environment has created New environmental legislation – thethe development and expansion of shale opportunities for but has also put strains Cross-State Air Pollution Rule and thegas and other sources of unconventional on gas pipeline operators. Pipeline Mercury and Air Toxics Rule – is exertinggas, has changed the economics of power businesses deliver stable cash flows, often an influence on deal activity. It is a factorgeneration and gas transportation. Low high yield, but the inter-regional in some of the larger mergers wheregas prices combined with lower power differences that are the basis of pipelines greater balance sheet strength putsdemand have put strains on power flows have been altered in a different companies in a better position to financegeneration. Many generation plants are supply and price environment. At the same the technological changes that areunderutilised in a changed supply/demand time, more sources of supply have required required. In some cases, companies haveand price environment. Sales of gas-fired more pipeline investment. As a result, been selling business units includingplant have added to smaller deal flow. greater spread and size is being sought by generation and transmission assets that companies. The US$37.9bn Kinder have been on their books for a while to Morgan/El Paso deal highlighted this raise capital to address the environmental trend. The US$9.4bn purchase of Southern compliance issues on their coal facilities. Union by Energy Transfer also creates one There has also been some realignment of of the largest operators in the US and gives portfolios to get a better balance between greater access to some of the new sources coal, gas and other generation. of gas. The acceptance of Energy Transfer’s proposal followed a period of competing bids from rival pipeline operator Williams.Deal dialogue:Managing uncertainty in today’s commodity marketsShale gas has been a game changer for the US commodity markets, causing natural • Uncertainty regarding reserves: Shalegas prices to drop to levels not seen since 2002. Many long-term forecasts project gas reserves and the economics ofsustained US$4-$5/MMBtu US natural gas prices. But a number of factors could fracking are based on models yieldingput upward pressure on natural gas prices. Companies must be aware of these wide-ranging projections largely relateduncertainties and factor them in when developing their strategic objectives, to limited available historic data.evaluating deals in the marketplace, and determining the value of their assets. As companies contemplate shifts to naturalThe following factors could exert upward • Infrastructure costs: Significant gas generation, it is important that theypressure on currently low US gas prices: investment in gas pipelines is needed in consider the impact that changes in order to gather, process and move the natural gas prices could have on them. For• Increased regulation/legislation: natural gas to market, including the rate-based utilities already facing rate There is still debate about the impact of ability to reverse the flows of existing increases from capital investment, what hydraulic fracturing (‘fracking’) on long-haul pipelines. would increases in gas prices mean for drinking water safety, the safe disposal ratepayers? For merchant companies, what of drilling fluids, the potential for • Increased demand: Domestic demand will potential volatility in gas prices and increased earthquake activity, as well as could increase significantly. Some power prices mean for liquidity? the level of lifecycle greenhouse gas forecasts project an 85% increase in emissions from shale gas. Stricter natural gas consumption in the power Investors demand a vetted strategy and regulation is being considered, and in sector by 2025. Additionally, there could thorough evaluation of capital some cases enacted, at both a state and be a shift to more natural gas vehicles, deployments. PwC has in-depth market federal level. Depending on the nature natural gas heating and increased expertise and is able to assist clients to of the regulation, this could cause a manufacturing utilising natural gas. evaluate the risks of commodity volatility significant increase in permitting time Developers are also considering on their generation portfolios as well as and overall costs. additional LNG liquefaction export provide proactive advice on strategies to terminals which would cause increased help mitigate exposures to natural gas• Increased fees/taxes: States are still demand as a result of international price volatility. considering the revision of drilling fees access. and taxes. Power Deals 2012 outlook and 2011 review 17
  18. 18. Deal places: a focus on markets worldwide Europe Even before the intensification of the eurozone crisis in July and Sweden’s Vattenfall is pursuing a August 2011, it was always set to be a quieter period for consolidation strategy, reshaping its portfolio to achieve the twin goals of focus European deal activity as power companies tilted more towards on three core markets of Sweden, Germany disposals and balance sheet strengthening. European target and and the Netherlands and CO2 reduction. bidder value is down to levels last seen before the wave of busy The result is a programme of divestment M&A activity that built up from 2004 onwards. But, although that looks set to include assets in countries deal value is significantly lower, the number of deals is still including the UK, Belgium, Finland and considerable and companies remain on the look out for Poland. These got underway in the second half of 2011 with an agreement for the sale opportunities. of Nuon in Belgium to Italian company Eni and the purchase of Vattenfall’s heat, The largest European deal was Eon’s In Eon’s case, the sales are designed to give electricity distribution, network services US$6.5bn sale of Central Networks to US it greater financial flexibility to expand in and electricity sales interests in Poland by company PPL Corporation (see deal growth markets outside Europe. It hopes Polish companies PGNiG and Tauron. In review). The sale comes as part of Eon’s that such growth will account for a quarter addition, just before the end of 2011, 15bn euros divestment target which it aims of earnings by 2015. South America is a Vattenfall announced its agreement to sell to achieve by the end of 2013. Both the big target but its hopes of gaining presence its electricity and heating distribution German power utilities are committed to through the purchase of Energias de assets in Finland to a Goldman Sachs/3i large disposal programmes. RWE’s 9bn Portugal were dashed when the auction for consortium for 1.54bn euros. euros divestment programme includes EDP was won by China Three Gorges. But plans to sell Net4Gas, its Czech gas-grid in January 2012 Eon was able to announce The sale of European assets has attracted operator, its stake in Berlin water company its success in gaining a 10% stake in worldwide interest from buyers, including Berlinwasser, as well as all or parts of its Brazil’s MPX Energia. Earlier in the year, Chinese, US and Canadian entities. Dea upstream gas and oil business. In Spain’s Iberdrola agreed the US$2.9bn Canadian pension funds, and also Dutch September 2011, RWE completed the sale purchase of Elektro in Brazil. We comment funds, have been increasingly visible as of a 74.9 % stake in the German electricity on both of these transactions in the deal direct investors in power utilities. Cheung transmission system operator Amprion. review section. Looking ahead, Eon’s Kong Infrastructure (CKI) competed for disposal of Open Grid Europe, its gas Central Networks to try to add to the transmission operation in Germany, will be network assets they had bought from EDF one of Europe’s principal deals in 2012. in the previous year. At the beginning of 2012, the Portuguese government announced it had accepted a bid from the State Grid Corporation of China for a 25% interest in Portuguese power grid company REN (Redes Energeticas Nacionals). This inbound appetite for Europe is set to Figure 10: Europe deals by target continue in 2012. % change in 2011 Value Number Value Number Power US$39.8bn 142 (43)% (25)% of which: Electricity US$32.3bn 107 (50)% (31)% Gas US$7.5bn 35 47% 3% Note: Excluding Russian Federation Source: PwC, Power Deals18 Power Deals 2012 outlook and 2011 review
  19. 19. At the end of 2011, EDF announced a Looking ahead, the eurozone crisis will In addition, the eurozone crisis itself willUS$6.3bn preliminary agreement to have an impact on prices and uncertainty act as a spur to dealmaking. Furtherincrease its stake in Italian company will continue to make agreement on government sell-offs, following the lead ofEdison from just under half to give it a valuation more difficult. But it is unlikely Portugal’s auction of EDP, are likely in78.95% controlling interest. In a quiet year to halt the divestment programmes of the countries such as Ireland and Italy. Thefor European bidders, the deal boosted the major utility companies. The underlying Irish government is committed to sellingcontinent’s 2011 bidder totals by more fundamentals for such deals remain off 2bn euros of state assets, including athan a quarter. Negotiations on the strong. Companies need to continue to minority stake in the state electricityarrangements between the main reposition their fuel and value chain mix company ESB. The Irish state gas company,shareholding parties had been going on for and to seek out growth markets. They have Bord Gais, is also likely to be partmuch of 2011. The deal will give EDF a big investment requirements and need to privatised.degree of diversification away from manage leverage. Debt markets remainnuclear generation in the wake of the constrained and, as RWE’s late 2011 share In a move unrelated to austerityFukushima nuclear emergency and sale showed, the equity markets are likely programmes, the Dutch government hassubsequent government policy reviews. to only provide a part answer. Raising announced its intention to privatise state capital from disposals remains an power and gas grid operators with gas grid important priority and is likely to remain a operator Gasunie and power grid operator strong feature of power deals in 2012. TenneT being prime candidates for sell- offs. Both have major infrastructure investment needs which are expected to be boosted by minority share sales. In the case of TenneT, the infrastructure challenges include the connection of a growing pipeline of offshore windfarms to the Dutch and German grid.Deal dialogue:Country risk in uncertain timesCountry risk is a measure of the risks inherent to investing in different sovereign Investors also need to consider ways ofterritories. Broadly speaking, it can be attributed to variations in the degree of mitigating country risk, for example,economic, political, financial and institutional stability in different countries. through contractual terms, minimisingGiven the current financial and economic volatility in global markets, adequately government influence and legal corporateaccounting for country risk is essential to successful business planning and structures.investment appraisal. The economics team at PwC maintains aHistorically, country risk has been During 2011, we saw a number of events, comprehensive CRP model with globalnegligible for most developed economies such as the ‘Arab Spring’ and the eurozone coverage. This is combined withand, in general, higher and more volatile sovereign debt crisis, which resulted in macroeconomic insight to supportfor emerging markets. However, following significant economic, financial and investors in appraising country risks.the onset of the eurozone sovereign debt political volatility. Some of this volatilitycrisis and subsequent ratings downgrades manifested itself in sovereign bond Our CRP model is updated quarterly andfor previously AAA rated countries, markets and as a result has impacted has historic data going back to 1997. Ascountry risk is now more widely spread measures of country risk. well as investment appraisal, we also helpand less predictable. clients use country risk assessment in With ‘safe-haven’ debt securities such as business valuations and divisionalIn order to account for this volatility in US Treasuries and German Bunds with performance assessment.business valuations and investment historically low yields, investors are clearlyappraisals, country risk needs to be sensitive to the heightened risk associatedincluded in any quantification of risk. with different countries. Factoring countryThis is typically done by including a risk into the calculation of investmentcountry risk premium (CRP) in discount value is a vital step to mitigate theserate calculations. concerns. Power Deals 2012 outlook and 2011 review 19
  20. 20. Deal places: a focus on markets worldwide Asia Pacific For the first time ever in Power Deals, Asia Pacific entities the region, and the delivery of commercial accounted for the largest number of deals in a year, with buyer sponsorship and support. The initial US$3.2bn deal is in the upstream and seller numbers just above those involving European exploration and production area and so dealmakers. But Asia Pacific target and bidder values were not included in our Power Deals data. It significantly down year on year. was also accompanied by a regasification deal with Chinese state-owned energy Deals included some significant The start of 2012 saw the Portuguese company CNOOC. expansionist moves by Chinese and government accept an offer for a 25% Japanese entities. Most notable among interest in Portuguese power grid company The second largest 2011 deal involving these was China Three Gorges US$3.5bn REN (Redes Energeticas Nacionals) from Asia Pacific companies was the distress bid for a 21.35% stake in Energias de China’s State Grid Corporation. As well as sale by Griffin Energy’s administrators of Portugal, giving it access to the growth being the only bidder to state an interest in the Bluewaters 1 and 2 coal-fired power market of Brazil and creating an important acquiring a full 25% from the government stations in Australia to Japanese power new strategic partnership (see deal in Lisbon, State Grid will also offer funding companies Kansai Electric Power and review). support for the group’s expansion of its Sumitomo Corporation. The deal value Mozambique and Colombian operations. was widely reported as US$1.2bn. Another The deal is symptomatic of increased State Grid already owns power US$1bn plus deal also arose from a interest in expansion into overseas power transmission and distribution assets in distress situation. Canadian utility markets by Chinese generating companies. Brazil, acquired in December 2010, and in company Atco bought Western Australia Such markets can offer better margins than the Philippines. These deals are part of the Gas Networks (WAGN) for US$1.1bn from the domestic market in China. The general ‘go abroad’ strategy of Chinese WestNet Infrastructure Group, a holding companies are also keen to acquire state-owned power companies, who seek company of Brookfield Infrastructure international utilities management investment in countries with high growth Partners. The price included the experience. The relative weakness of the and often lighter regulation. assumption of approximately US$666m of euro and the British pound against Asian debt. WAGN serves more than 620,000 currencies is helping buyers. Any softening The Europe-bound Chinese appetite is also connections through 12,800 km of natural of valuations as the crisis in Europe being matched with an appetite for gas pipelines and associated infrastructure. develops is likely to reinforce this international partnerships in the region. The deal adds to Atco’s existing power outbound deal interest. In October 2011 GDF Suez entered into a generation presence in Australia and gives partnership with Chinese sovereign wealth it access to gas growth potential. fund China Investment Corporation to explore joint investment opportunities in existing and new energy-related projects among others in the Asia Pacific region, financing cooperation in new projects in Figure 11: Asia Pacific deals by target % change in 2011 Value Number Value Number Power US$14.1bn 156 (29)% (3)% of which: Electricity US$10.0bn 122 (40)% (10)% Gas US$4.1bn 34 40% 42% Source: PwC, Power Deals20 Power Deals 2012 outlook and 2011 review
  21. 21. The end of 2011 saw more inbound deal Tepco requires major fundraising for its This is expected to lead a significantactivity for Australian gas assets. Japan’s reconstruction and compensation tasks. change in the generation mix, as coal givesMarubeni Corporation and infrastructure The extent of consequent deal activity will way to gas or renewables as a fuel sourcefund RREEF announced a US$512m deal depend on deliberations between the for new greenfield investment. It couldfor a 40% stake in Queensland gas company and the government. also potentially lead to deal activity asdistribution network Allgas from gas owners of affected plant consider theirtransmission and distribution firm APA Towards the end of the year the Australian competitive position in the market.Group. The deal adds further scale to government passed its long-debatedMarubeni’s existing interest in energy carbon legislation. The new law sets a Transactions arising from the earlier saleinfrastructure in Australia. At the same fixed carbon tax of A$23 a tonne on the of New South Wales’ government energytime, APA Group announced a US$1.3bn 500 highest emitters from July 2012. The retailers were completed during 2011.hostile takeover bid for the Hastings price will increase by 2.5% per annum Subsequently, there has been a change ofDiversified Utilities Fund securities it does before moving to an emissions trading state government. In November 2011, thenot already own. The fund’s assets include scheme from July 2015. The legislation new government announced that it wouldEpic Energy’s three natural gas gives the prospect of greater carbon be putting its remaining power generationtransmission pipeline systems. A certainty and, longer term, is expected to stations up for sale. While the timing ofcombination of APA and HDF would have change the generation mix. This may lead any transaction remains uncertain,more than 15,000 km of gas transmission companies to consider disposals, prospective bidders will no doubt bepipelines across Australia. partnerships or refinancing of some coal- reaching for the spreadsheets to value fired assets. them. The current intention is for the stateJapanese trading company Itochu to keep transmission and distributionCorporation was an active acquirer with The clean energy legislation in Australia assets but it is widely rumoured that thefive smaller deals during 2011, including also included the Contract for Closure sale of these assets may follow in futurethe acquisition of a 33% stake in Belgian (CFC) programme, which seeks to government election terms.electricity generating company T-Power negotiate the closure of around 2000MWfrom International Power. This deal was a of highly emissions-intensive coal-firedprerequisite to the completion of the generation capacity by 2020. Specificmerger of GDF Suez and International criteria have been published, with brownPower. In Japan itself, all attention has coal-fired power stations in Victoria andbeen focused on the impact of the South Australia heading the list ofearthquake and tsunami on Tokyo Electric applicable plants for closure.Power Company (Tepco).Deal dialogue:Japan power deals after the earthquakeMost Japanese energy or energy-related companies were forced to reconsider their • Moving from diversification toinvestment strategy following the 11 March 2011 earthquake. In particular, the specialisation. The electric powermajor power companies who own nuclear power stations had to refocus their companies have built a portfolio ofresources on the reinforcement and maintenance of those plants and consequently major non-power assets such as realhad to cease new investments. The only exceptions are the trading houses, sogo estate, IT, communication and othershosha, who have continued to show a strong appetite for traditional IPPs, services. In particular, Tepco has startedrenewable, and natural resources around the world. to sell these types of assets and will likely continue in this direction. OtherLooking ahead, in the medium term, the • Repositioning from fossil fuels to major electric power companies maypower companies will need to consider renewables. Every type of fossil fuel accelerate their moves in new growththeir existing portfolio composition. This generation in Japan faces challenges areas such as renewables and/or smartcould be achieved in several ways: due to high import costs, CO2 and grid technologies. supply security. The government has• Switching from the model of closed established a new law for renewables, In contrast, the trading houses are integrated power assets (i.e. generation, including a feed-in tariff to be constantly shuffling their diverse transmission, distribution and introduced during 2012. Many Asian portfolios. Their infrastructure assets have maintenance together) to open single solar players and non-utility players become increasingly diversified, not only assets. A separation of functions may such as telecoms/home builders have covering power and renewables but also help address challenges and can been keeping a careful eye on the water, logistics and smart grids. They also eliminate barriers to enter the market. Japanese renewable markets. have considerable wider portfolios For example, Tepco may have to sell including natural resource and metals their generation plants to compensate interests. This model looks set to remain the victims of the disaster. highly durable. Power Deals 2012 outlook and 2011 review 21
  22. 22. PwC firms help organisations and individuals create the valuethey’re looking for. We’re a network of firms in 158 countries withclose to 169,000 people who are committed to delivering qualityin assurance, tax and advisory services. Tell us what matters toyou and find out more by visiting us at www.pwc.com.The Global Energy, Utilities and Mining group is the professionalservices leader in the international energy, utilities and miningcommunity, advising clients through a global network of fullydedicated specialists.For further information, please visit:www.pwc.com/powerdealsThis publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should notact upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express orimplied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law,PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone elseacting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.© 2012 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms ofPricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each memberfirm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients.PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professionaljudgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it controlthe exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.