EDF should consider lightening its debt load with asset sales after the government nationalises it. Its Italian gas and power business Edison would be an attractive candidate — if French president Emmanuel Macron can only persuade Italy’s Giorgia Meloni to play nice.
France is in the process of buying out minorities in the struggling nuclear group. EDF will need to solve production outages and build new reactors. And it must do so with €60bn of year-end net debt and income deeply in the red, according to S&P Global estimates.
Despite denials from EDF, the sale timing would be favourable. Both businesses are doing well this year. The power generation arm has 6.4GW of capacity, of which almost 70 per cent is gas-fired and the rest renewable. This unit benefits from electricity prices that, in the first half of 2022, were almost four times higher than the previous year. At 5.5 times expected 2022 ebitda, the business might fetch €4bn.
Edison’s gas business combines storage capacity and a portfolio of gas contracts for supplies from the likes of Qatar, Libya and Algeria. After a 450 per cent year-on-year jump in Italian gas prices, on 6 times projected — bumper — ebitda for this year, the business might be worth €3.5bn. The combined enterprise value, after corporate costs, would reach €7.2bn. That would take a chunk out of EDF’s debt pile.
The flipside is that this price tag makes Edison a big mouthful for industrial or private equity buyers. Moreover, the politics of energy are fraught. Italy’s new government, led by the nationalistic Brothers of Italy party, might balk at France auctioning off a business whose initial purchase Italian politicians resisted.
If EDF did put Edison on the block it would be an interesting test of two propositions. The first is that big-ticket deals are possible amid volatile energy prices and rising debt costs. Also, one wonders whether Italy’s prospective prime minister Meloni would observe passively in the event of a sale.
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