When a French state utility wants to buy a British nuclear power company, it needs diplomatic savoir faire as much as commercial clout. For Electricité de France that meant one person: Thierry Varène, the dean of French investment banking.
In early 2008, EDF was working with Merrill Lynch’s Marc Pandraud to prepare a bid for British Energy when it realized that it would need extra help to pull off what would become one of Europe’s most complex takeovers. So in early spring the 85 percent-government-owned French utility hired BNP Paribas and its global head of corporate finance, Varène. “We joined in March because EDF wanted to rework the valuation and some aspects of the model,” says the French banker. “Plus, the main shareholder was the French state, and it wanted someone with insight into [its concerns].”
Varène had advised EDF on its €6.35 billion ($9.5 billion) IPO in 2005. More important, the 57-year-old banker is as at home in London as in Paris. He worked as a top investment banker for Barclays Bank for 14 years before joining Paribas in 1995. Ever since BNP acquired Paribas in 1999, Varène has helped it dominate France’s league tables.
EDF’s first offers were rejected by two key British Energy shareholders, fund managers Invesco and M&G Investments. So Varène put together a sweetened bid of £12.4 billion on September 25, 2008 — in the midst of the global market meltdown.
The banker also displayed his considerable diplomatic instincts. Critically, the richer bid was partly financed by the sale of a sizable minority stake in British Energy to a rival U.K. utility, Centrica, thus reassuring British authorities keen to retain some control over the nation’s nuclear power industry.
As the deal approached the closing date in January 2009, however, Centrica’s shareholders got cold feet. Energy prices were weakening amid the recession, making the British Energy minority stake suddenly look rather dear. Varène came up with a clever way to save the deal: Centrica would pay the agreed-to £2.3 billion for the BE stake, but it would also raise cash by selling its 51 percent stake in Belgian utility SPE to EDF for £1.2 billion.
British Energy shareholders, meanwhile, received part of the EDF acquisition price in “contingent value rights,” a complex, option-like instrument invented expressly for this deal. Through CVRs, BE shareholders obtain a stake in any increase in BE plants’ future financial flows for ten years based on energy use and prices. Bankers estimate that the CVRs could enhance BE shareholders’ return over the bid price by as much as 45 percent, although that would require optimal conditions.
Such complex maneuverings are all in a day’s (and night’s) work for Varène, who has worked on some of the biggest and most complicated mergers in French history, including the two-year-long saga that produced France’s other energy giant, GDF Suez.
| | 1 | Jack Levy | Goldman, Sachs & Co. | |
| | 2 | Alex Wilmot-Sitwell | UBS | |
| | 3 | Thierry Varène | BNP Paribas | |
| | 4 | Michael Klein | Citi | |
| | 5 | Arthur Korpach | Canadian Imperial Bank of Commerce | |
| | 6 | Todd Snyder | Rothschild |
