UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE
ACT OF 1934
For the Month of August 2004
EDP- Electricidade de Portugal, S.A.
Praça Marquês de Pombal, 12
1250-162 Lisbon, Portugal
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F x Form 40-F ¨
(Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)
Yes ¨ No x
30 July 2004
Acquisition of Additional 56% Stake in HC
Disclaimer page
Some of the information contained in this document contains forward-looking statements. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and EDP’s actual results may differ materially from those in the forward-looking statements as a result of various factors. EDP undertakes no obligation to publicly update or revise any forward-looking statements.
The information contained herein does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the securities referred to herein, in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, exemption from registration or qualification under the securities laws of any jurisdiction.
A registration statement relating to the securities referred to herein has been filed with the U.S. Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This communication shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any U.S. State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State.
The offering will be made only by means of a prospectus included in the registration statement. A written prospectus, when it becomes available, may be obtained from Mr Pedro Pires João, Director of Investor Relations at EDP, Praça de Marquês de Pombal 12, 1250-162 Lisbon.
This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (the “Order”) (all such persons together being referred to as “relevant persons”). The securities referred to herein are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. This communication must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons.
Stabilization/FSA.
1
Table of contents
Section 1 Transaction highlights
Section 2 Transaction rationale
Section 3 Transaction structure and timetable
Section 4 Financial overview
Section 5 Conclusions
2
Table of contents
Section 1 Transaction highlights
Section 2 Transaction rationale
Section 3 Transaction structure and timetable
Section 4 Financial overview
Section 5 Conclusions
3
Transaction overview
EDP is acquiring an additional 56.2% stake in Hidrocantábrico (“HC”) for €1,195 MM taking total ownership to 95.7%
34.6% from EnBW for €649 MM
17.5% from Cajastur for €453 MM
4.1% from Cáser for €93 MM
Agreement includes sale of HC non-core telecom assets, expected to generate a substantial capital gain
Total price of €1,978 MM paid by EDP for 95.7% of HC (includes initial acquisition of 39.5% in 2001 for €783 MM)
Acquisitions financed through fully underwritten €1.2 Bn dual-stage rights issue which ensures funds availability and preserves balance sheet strength
Cajastur becomes an important reference shareholder of EDP
EDP reinforces its position as a top tier Iberian energy player
4
Transaction rationale
HC is a highly attractive investment opportunity
Very strong fit with EDP’s overall energy strategy in Iberia
HC is a pure play gas and power operator with strong growth prospects
Final essential step for the integration of HC and EDP and for the extraction of synergies
Elimination of potential conflicts of interest with other shareholders in HC allows for the integration of HC and EDP
Integration of HC and EDP will extract full value from:
integrated management of complementary generation portfolio
coordinated Group retail strategy
complementary gas positions and common gas sourcing
optimised and coordinated generation capacity expansion strategy
Maximise extraction of synergies
Integration ahead of MIBEL
Integration of two leading Spanish and Portuguese players ahead of the full operation of MIBEL
EDP reinforces its position as a top tier Iberian energy player
5
Key transaction terms: acquisition and financing
Stake acquired
EDP is acquiring additional 56.2% of HC, taking total ownership to 95.7%
entire EnBW’s stake: 34.6%
most of Cajastur’s stake: 17.5%
part of Cáser’s stake: 4.1%
Price
Total agreed transaction consideration of €1,195 MM as follows:
EnBW interest (34.6%): valued at €649 MM
Cajastur interest (17.5%): valued at €453 MM
Cáser interest (4.1%): valued at €93 MM
EnBW: cash
Consideration
Cajastur: EDP shares
Cáser: cash
Financing
€1,200 MM dual-stage rights issue to be launched in October
Fully underwritten capital increase, ensuring availability of equity financing for the acquisition
Right for EDP shareholders to participate in the capital increase and benefit fully from strategic and financial rationale of the acquisition
Rights issue conditional on M&A transaction completion, including EU anti-trust approval
Transaction fully supported by Portuguese State
6
Table of contents
Section 1 Transaction highlights
Section 2 Transaction rationale
Section 3 Transaction structure and timetable
Section 4 Financial overview
Section 5 Conclusions
7
Strong and compelling transaction rationale
Full integration of HC is consistent with EDP’s strategic objectives
HC is a pure electricity and gas player
HC has a significant position in gas following the acquisition of Naturcorp
HC is strongly focused on achieving maximum operating efficiency
Elimination of potential conflicts of interest is key to maximise management flexibility and optimise business integration in MIBEL
Integration of HC and EDP will extract full value from:
integrated management of complementary generation portfolio
coordinated Group retail strategy
complementary gas positions and common gas sourcing
optimised and coordinated generation capacity expansion strategy
Maximise extraction of synergies
Integration of two leading Spanish and Portuguese players ahead of the full operation of MIBEL
8
Integrated management of complementary generation portfolio
Gain advantage from a fully integrated generation portfolio management strategy
joint generation mix closer to market generation mix
risk profile aligned with the market
Develop a single trading unit with central dispatch
minimisation of generation costs
portfolio margin optimisation
joint procurement of raw materials
integrated deal structuring and bidding
combined CO2 allowances management and trading
integrated risk management and mitigation
More diversified generation mix 2003A
100 80 60 40 20 0
EDP HC EDP + HC Total Iberia (1)(2)
24 5 16 55 15 60 7 18 18 8 27 2 45 15 13 22 14 36
Hydro Nuclear Coal CCGT Fuel/Gas
Notes
1. Not including renewables and special regime
2. 100% of HC
9
Coordinated retail strategy
Coordinated retail strategy in Portugal and Spain
flexibility to define and manage a more competitive commercial strategy across the Iberian peninsula
option to vertically integrate generation and retail activities to minimise market exposure
ability to capture growth opportunities in Spain while strengthening competitive position across the Iberian market
leverage Iberian customers through cross-border electricity and gas offering
Enhanced dual fuel offer strategy
increase customer retention following gas market liberalisation
Balance retail – generation (2003A) Retail volume(1) (TWh)
100 80 60 40 20 0
0 20 40 60 80 100
Generation volume (TWh)
IBERDROLA UNION FENOSA gasNatural
Note
1. Free + guaranteed retail
10
Complementary gas positions and common gas sourcing
EDP is taking control of GDP(1)
more flexibility through elimination of destination clauses
optimisation of power plant portfolio (increased flexibility of take-or-pay contracts)
Full benefit from integration of diversified gas sources
access to more diversified sourcing portfolio of NG and LNG
arbitrage opportunities between contracts with different benchmarks
larger gas portfolio
economies of scale
more flexibility
spot opportunities
EDP + HC sourcing portfolio 2004 bcm
6 5 4 3 2 1 0
3,8 0,1 1,3 2,4
1,6 0,5 1,1
5,4 0,5 1,1 0,1 1,3 2,4
Portugal Spain Iberia
Algeria Nigeria Malaysia T&T Spain
Note
1. Subject to regulatory approval
Source: EDP
11
Optimized and coordinated generation capacity expansion strategy
EDP and HC will be able to optimize their generation capacity investment programme
Geographically
decisions based on local regulatory and environmental framework
regional hedging based on pan-Iberian load patterns
By fuel profile
CCGTs investment and its relation to the overall power and gas strategy of the combined group
coal, with reference to impact of Sox investment requirements and the use of CO2 certificates
scale advantages in renewables from combined portfolio
Increased optionality
Different demand increase in each country
Installed capacity / reserve margin
Renewables evolution
CO2 position at country and European level
New plant capacity additions by HC and EDP
MW
2.500 2.000 1.500 1.000 500 0
800 400 1.200 2.400
2006 2007 Until 2010 Total
Plants
Ter 3 Castejón 2 Soto
12
Maximise extraction of synergies
Breakdown of main synergies in full year (€ MM/year) Synergies (€ MM)
40 35 30 25 20 15 10 5 0
Total
3 - 5 2 3
7 - 9 2 7
9 - 13 4 9
6 - 8 2 6
25 - 35 10 25
Revenue enhancement
Portfolio optimization
Cost reduction
Capex reduction
Total
Key business drivers of synergies (% of total operational synergies)
Generation and Trading (>50%)
Joint fuel and OEM purchasing
Generation portfolio optimization
Gas (30%)
Optimization of contract portfolio
Risk hedging
Shipping optimization
Additional non quantifiable synergies
Stronger market position at Iberian level
Coordinated investment plans
Increased flexibility to capture business opportunities
To be gradually implemented by 2007
13
Well defined integration plan
Integration calendar
First 100 Days
Synergies level confirmed and detailed action plan defined
New trading common management in place
Common activities/strategies defined
bidding strategy
coal purchasing
investment plan in conventional and renewable generation
retail strategy
gas sourcing strategy
Regulatory position defined
Communication plan to other stakeholders defined and in process
New organization and processes implemented in Spain to guarantee optimal coordination with Portugal
First year
Common trading organization
Extraction of synergies at the opex level
Common purchasing organization and processes fully operational
Optimize gas sourcing management
Coordinated strategy on Gas infrastructure development in Spain—international assets of GDP
Years 2 – 3
Sharing of retail support structure
Common IT plan in place and convergence of platforms
14
Clear execution strategy and framework
Simple and manageable structure of 8 task-forces
Equipment purchase task-force
Generation
Renewables, etc.
Trading integration task-force
Organization, processes and management task-force
Systems task-force
Fuel purchase task-force
Retail business task-force
Communication and external relations task-force
Regulation task-force
Progress review structure
Ensure progress, control milestones and delivered quality
Report to EDP’s Executive Committee
Day-to-day coordination and task-force guidance
Integration of task forces’ output to deliver an update of the strategy of the new group
Help integrate task-force outputs
Production of progress control information
Steering Committee
Task-force coordination
EDP element
HC element
Task-forces
Leader
Participants
Project office support elements
15
Table of contents
Section 1 Transaction highlights
Section 2 Transaction rationale
Section 3 Transaction structure and timetable
Section 4 Financial overview
Section 5 Conclusions
16
M&A structure
M&A environment
Favourable market and political conditions
Current willingness of HC shareholders to sell
EnBW agreement
EnBW’s 34.6% stake acquired for €649 MM in cash
Cajastur 17.5% stake valued at €453 MM for EDP shares
EDP shares to be delivered to Cajastur valued at average price six months prior to announcement, adjusted for rights issue dilution
Cajastur to become core shareholder of EDP (5.4-5.8% stake)
Cajastur / Cáser agreement
Cáser 4.1% stake acquired for €93 MM in cash
Cajastur retains put option on remaining 3.1% stake in HC, indexed to EDP’s share price so that EDP’s and Cajastur’s interests are unequivocally aligned
Existing HC shareholder’s agreement cancelled
Both agreements subject to
EU approval – targeting phase I resolution
Conditions precedent
non-opposition by the Spanish government
completion of acquisition of both stakes
financing—interconditionality of the M&A and financing processes
17
Financing structure
Rights issue of €1.2 Bn to be launched in October to fully finance the acquisition and preserve balance sheet strength
Dual stage structure—capital increase fully underwritten by a bank syndicate from transaction announcement:
ensures availability of equity financing for the acquisition
power to set terms of rights issue to be delegated to the BoD at EGM on October 7
rights issue to be completed in November
Rights issue conditional on completion of M&A transactions:
no proceeds raised if acquisition is not completed
timetable linked to M&A process, launching after regulatory approval has been obtained
18
M&A and financing indicative timetable
29 July
Board meeting for transaction approval and EGM calling
Signing of:
M&A contracts
Financing underwriting agreement
Announcement of:
M&A transaction and equity financing
1H 04 Results
+ 5-7 weeks
Privatisation Decree Law to be passed
EU transaction review completed(1)
October 7
EGM approval and power to set terms of capital increase delegated to BoD
~ + 5-7 weeks
M&A closing
Rights issue delivery / settlement
Note
1. Assuming Phase I only review process
19
Table of contents
Section 1 Transaction highlights
Section 2 Transaction rationale
Section 3 Transaction structure and timetable
Section 4 Financial overview
Section 5 Conclusions
20
Financial impact on EDP
Accounting consolidation
Full consolidation of HC as of transaction completion date
Synergies implementation
Synergies amount to €25-35 MM to be gradually implemented
full implementation after a 36-month integration period
synergies are net: no further integration costs expected
Transaction / existing HC goodwill
Transaction goodwill of €245MM
not amortized under new IAS principles (2005 onwards)
expected to be tax deductible
HC existing goodwill
not amortized under new IAS principles (2005 onwards)
continues to be tax deductible under Spanish tax regime
Potential non-core divestments
Transaction ensures monetization of telecom investments held by HC
minimum value realisation expected to be €125 MM(2) (for HC stake)
EPS impact
Transaction expected to be approximately neutral from 2005 onwards
Valuation
Total price paid for 95.7% stake implies 10.3x AV/LTM EBITDA(1)
(1) LTM EBITDA as of June 30, 2004. AV excludes expected minimum value for cable assets (€125MM in cash and stock)
(2) In cash and stock
21
Capital structure analysis
EDP pro forma net debt pre/post HC transaction
€MM
10,000 8,000 6,000 4,000 2,000 0
7,205 1,106 (59) 1,195 (1,200) 8,247
2003A EDP net debt
Additional HC net debt to be consolidated
Expected minimum proceeds from sale of cable investments (1)
Cash paid for additional 56.2% of HC
Rights issue
2003 pro forma EDP net debt
Net Debt/ EBITDA 3.9x 4.1x
Note
1. After-tax cash proceeds at 15% capital gains tax
22
Impact on EDP
EBITDA / net interest
x
Total Debt / Book Capitalisation
%
6 4 2 0 (3.6)%
2003A EDP standalone 2003 proforma
60 50 40 30 20 10 0 (4.2)%
2003A EDP standalone
2003 proforma
23
Table of contents
Section 1 Transaction highlights
Section 2 Transaction rationale
Section 3 Transaction structure and timetable
Section 4 Financial overview
Section 5 Conclusions
24
Conclusions
HC offers a strong fit with EDP’s overall energy strategy in Iberia
Transaction enables EDP to extract maximum value from business integration and realisation of synergies
Combination of two leading Spanish and Portuguese players ahead of full operation of MIBEL
Transaction structure maintains EDP’s financial strength
EDP reinforces its position as a top tier Iberian energy player
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated August 3, 2004
| EDP- Electricidade de Portugal, S.A. | ||
| By: | /s/ João Ramalho Talone | |
| Name: Title: |
João Ramalho Talone Chief Executive Officer | |