A Portugese bet on American wind

From Institutional Investor:

Riding on the Wind

António Mexia, CEO of Energias de Portugal, has no delusions of grandeur. By European standards, the Portuguese utility is, he acknowledges, “an average company.” With a $23.8 billion market capitalization, EDP is a mite compared with Europe’s biggest utility, Electricité de France, valued at $216.5 billion, according to the annual ranking published in January by Washington-based consulting firm PFC Energy. Three power companies in neighboring Spain alone sport market caps exceeding that of EDP.

But, Mexia points out, “the market structure is totally different in the U.S.,” where Lisbon-based EDP would rank in the top ten, ahead of such prominent names as American Electric Power, Constellation Energy Group and PPL Corp. And it is in the U.S. that EDP is preparing to throw its weight around. Mexia’s approach isn’t conventional, however. He wants to help propel the country into the future of alternative energy, combating global warming while rewarding shareholders.

Last July, EDP acquired Houston-based wind power developer Horizon Wind Energy for about $3 billion. That first U.S. foray — EDP operates in five European countries and Brazil — contributed to a 132 percent increase in EDP’s installed wind-turbine capacity during 2007, to 3.6 gigawatts. That ranks it fourth in the wind sector, behind Iberdrola and Acciona Energía, both of Spain, and Florida Power & Light Co.’s FPL Energy alternatives affiliate. In short order, Mexia began contemplating the next step in raising EDP’s alternative-energy profile: an IPO consisting primarily of Horizon and European wind assets, called EDP Renováveis, or EDP Renewables. The plan, spelled out in January, calls for the spin-off of a 20 to 25 percent interest, with shares to be listed on Euronext Lisbon.

“We will make a go or no-go decision in May, depending on market conditions,” says Mexia. Though the IPO climate is uncertain, Mexia believes that Renováveis will stand out as the only pure-play wind stock. Renováveis’s earnings before interest, taxes, depreciation and amortization increased 46 percent last year, to €214 million ($334 million). EDP’s ebitda rose 14 percent, to €2.63 billion, while revenues were up 6 percent, to €11.01 billion. Trading recently at just above €4, EDP’s shares had gained 3 percent year-over-year, lagging Spain’s Endesa, at 6.3 percent, and ahead of Iberdrola, at 2.5 percent.

Mexia, 50, previously CEO of Galp Energia, Gas de Portugal and Transgás, has been EDP’s chief since March 2005, after serving nine months as Portugal’s minister of Public Works, Transportation and Communications.

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