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Uniper [ETR:UN01] is unlikely to find a white knight bidder to fend off a takeover offer from Fortum [HEL:FORTUM], which has struck a deal to buy out largest shareholder E.ON's [ETR:EOAN] stake, three bankers and two investors said.

E.ON agreed to sell its 46.65% stake in Uniper to Fortum yesterday (28 September), valuing all of Uniper at an enterprise value of EUR 9.7bn. Fortum will launch a voluntary takeover bid for 100% of Uniper in connection to the deal, but has no acceptance threshold attached to its offer.

A high break-up fee for the deal between Fortum and E.ON would make it expensive for a rival bidder to step in, said the first banker.

If E.ON were to decide against selling its stake to Fortum, it would have to pay the company at least 20% of the equity value of its Uniper stake, Fortum said on Tuesday. That would imply a break fee of at least EUR 750m on the E.ON’s Uniper stake, which the deal values at about EUR 3.8bn.

The first investor - Dimitri Willems, a portfolio manager at Kempen Capital Management – agreed with the banker, saying that it would be “too much to ask” a bidder to compensate for the break-up fee and then pay a premium on top of that. Kempen was Uniper’s 15th largest shareholder as of July-end.

“[I’m] puzzled by what Uniper’s management can do to fend off Fortum’s offer,” Willems said.

Moreover, it is unlikely that many companies that would be interested in buying all of Uniper’s assets, the first banker said, adding that Fortum’s bid for Uniper was “surprising” in itself. The company generates power and owns coal, gas, oil and combined gas and steam power plants, hydroelectric power plants, nuclear power stations in Sweden, a biomass plant in France, as well as solar and wind power facilities.

The second banker indicated that Uniper’s equity story would be a hard sell, remarking that the company has declining assets.

E.ON spun off Uniper in 2016 after writing down billions of dollars of assets due to weak wholesale power prices and losses in conventional power generation. But wholesale power prices have improved this year, benefiting Uniper. Uniper’s sales revenue grew 12% to EUR 37.3bn in the first half of the year. The company raised its dividend on higher operating profit last month.

There is limited buyside interest in Europe for conventional power assets, a third sector banker said, so the sale of Uniper was always going to be tough. Fortum is one of the few potential investors with both the appetite for conventional power and the funds, arising from the sale of its networks business, to pursue acquisitions in the space, he said.

There are few potential candidates that could emerge as rival bidders, the third banker said, bar a limited number of strategic investors focused on conventional power generation.

The second investor, Thomas Deser, a fund manager at Union Investment, also said he would be surprised if there were rival bidders for Uniper, adding that any acquirer would have to weigh the prospect of investing in Russia at a time when the Rouble is weak. A potential rival would also have to take into account Europe’s carbon policy, besides coal prices, he added.

Union Investment is a shareholder in both E.ON and Uniper.

Dividend yield was the only the aspect that made Uniper an attractive investment, Deser said. Even so, with yields increasing in other asset classes, Uniper might become a less interesting investment for yield seekers, he said.

Willems also said that the increase in Uniper’s share price on takeover rumors over the past few months had lowered the divided yield on the stock, making it a less attractive investment.

Still, he said Uniper’s trading price on Thursday, which is about EUR 1 above offer price, represents fair value for the stock more than Fortum’s EUR 22 offer price. Uniper closed at EUR 23.15 on Thursday (28 September).

There is scarcity value in Uniper’s stock, he said, explaining that nuclear assets may become valuable in five to six years following the phase out of nuclear power plants in Germany by the end of 2022.

Fortum would have to raise its offer if it wants to acquire Uniper’s free float, he said. Deser agreed that a higher offer from Fortum could not be ruled out.

However, Fortum has publicly stated it has no plans to raise its offer. A person briefed on the matter said there was no room for a higher offer.

In the event Fortum’s takeover offer attracted unanimous shareholder support, the acquisition would take Fortum’s net debt/EBITDA to 3.96x excluding any synergies, according to Dealreporter analytics. The Finnish company’s target 2.5x net debt/EBITDA would require estimated disposal proceeds of EUR 4.4bn, assuming no synergies. Alternatively, with no disposal, hitting the target gearing ratio would require synergies of EUR 1.8bn.

Uniper, a subsidiary of E.ON, is an energy generation and energy trading company. Uniper also has energy trading activities and equity investments in energy generation companies in Russia, the Czech Republic and Brazil, and a US energy trading subsidiary based in Chicago.