The July deal by which Czech power major ČEZ took control of the municipal heating firm Energotrans from Energetický a průmyslový holding (EPH) — in part exchange for a 50-percent stake in the German coal miner Mibrag — was not nearly as advantageous as ČEZ claimed. According to Czech Position’s sources, ČEZ’s auditors refused to sign off on the deal.
Under the deal, EPH paid ČEZ €130 million for its 50-percent stake in JTSD, the 100-percent owner of Mibrag. Two sources in ČEZ confirmed to Czech Position that the price comprised €24 million for the JTSD stake, €41 million for the option to construct a power plant next to Mibrag’s mine at Profen, in the German state of Saxony-Anhalt, and €65 million to cover JTSD’s debt obligations.
In 2009 ČEZ and EPH (jointly owned by Czech investment groups PPF and J&T) together paid €412 million for the 100-percent stake in Mibrag (which they split) plus €67 million to cover the company’s debts, meaning an overall takeover price of €479 million. The same year the auditing firm PricewaterhouseCoopers (PwC) valued Mibrag at €660 million.
This year, according to the price for which it sold Mibrag to EPH, ČEZ evaluated the company at just €260 million. In order to draw a comparison, a further €200 million must be added to take into account debt accumulated by Mibrag in 2010. Even then, however, the price for which ČEZ sold its stake was below what it paid for it just two years earlier — and considerably below PwC’s evaluation.
Challenging evaluation
“ČEZ’s internal evaluators insisted that the value of Mibrag is higher than the amount for which it was to be sold. Therefore, the management hired Deloitte, which lowered the evaluation to Kč 360 million,” a ČEZ source told Czech Position. “Mibrag’s EBIDTA [earnings before interest, taxes, depreciation and amortization] for 2010 was approximately €130 million; therefore, ČEZ sold at the price of double the EBITDA, and for 1.5 times EBITDA if we deduct the money for the Profen project.”
According to another source, ČEZ analysts insisted that the value of Mibrag was between €500 million and €1 billion, taking into account the forecast rise in electricity prices. Nevertheless, long-term forecasting of energy prices borders on the speculative due to a range of uncertain factors, including the level of political support for renewable energy sources through subsidization of purchase prices and indirect taxation of conventional sources through emissions permits.
ČEZ: It’s different
ČEZ board member Tomáš Pleskač, who took main responsibility for Mibrag within the group, says that it’s necessary to take a different view of the transaction with EPH, and that the deal was advantageous for ČEZ. He argues that the purchase and sale price of the stake in Mibrag should be evaluated on the basis of the company’s actual cash flows.
“Looking at the timescale it’s obvious that we definitely made a profit from the investment into Mibrag. €384 million from ČEZ went into Mibrag, while €428 million went from Mibrag into ČEZ,” Pleskač said. According to him, that means ČEZ made a profit of €44 million (around Kč 1 billion) from the investment.
But the fundamental question is whether ČEZ couldn’t have made a profit several times larger from the company. Is Mibrag so “cleaned-out” that it’s real value is the equivalent of just EBITDA for two years?
Following the accident at the Fukushima nuclear plant in Japan and Germany’s consequent decision to gradually decommission all of its nuclear power plants, it is apparent that coal will increasingly account for considerably larger share of the country’s energy mix.
The output of coal power plants will be in increasing demand, and thus Mibrag need not worry about sufficient demand for its coal. It’s likely that it will soon be in a similar position to Czech brown coal mining companies, which are pushing up prices on the grounds of insufficient reserves.
