One of the longest acquisition dramas in Bulgaria was settled today, July 27. After several unsuccesful attempts, the Czech energy conglomerate CEZ sold its Bulgarian operations to a local company. The sale agreement was signed in June 2019 and had to be approved by the Bulgarian Competition Authority and the Bulgarian Energy and Water Regulatory Commission. "Overall, CEZ Group leaves Bulgaria with a positive cash balance of over CZK 1 billion", said the company in a press release.
The buyer - energy and insurance holding group Eurohold Bulgaria, paid 335-million-euro for the assets. In early June the European Bank for Reconstruction and Development (EBRD) announced it would extend up to 60 million euro senior loan to the holding and a couple of weeks later the buyer successfully placed a new share issue on the Bulgarian Stock Exchange, raising about 80 million euro in fresh capital. More than half of it came from Starcom, the majority shareholder of Eurohold.
The package of assets sold includes 67% of electricity distributor and network owner CEZ Razpredelenie Bulgaria and electricity supplier CEZ Electro Bulgaria, as well as 100% of electricity trader CEZ Trade Bulgaria, IT service company CEZ ICT Bulgaria, photovoltaic park Free Energy Project Oreshets, biomass electricity producer Bara Group and parent company CEZ Bulgaria.
The EBRD provided up to 60 million euro to Eastern European Electric Company B.V., the fully owned subsidiary of Eurohold Bulgaria that was set up as a special purpose vehicle for the acquisition. The proceeds were used to finance the purchase of CEZ's assets in Bulgaria, as well as the implementation of the distribution network upgrade program. The term of the loan is five years.
The EBRD assesses the total project costs at 525 million euro, with the amount including the investments planned in the next few years. Eurohold also had to allocate funds for the tender offer it is obliged to make to the other shareholders in CEZ Razpredelenie and CEZ Electro. The exact amount depends on the assessment of the separate assets in the package. Rough estimations showed the company needed at least 100 million euro for that. The overall acquisition and capex financing package included a combination of equity raise, preferred equity instrument and a senior loan syndicated to commercial banks, according to the EBRD.
Eurohold also successfully increased its capital, raising 157 million leva (80.5 million euro) on the bourse. As expected, about half of the new shares were subscribed by Eurohold's majority owner Starcom Holding, in which the main shareholders are Bulgarian citizens Asen Hristov and Kiril Boshov.
Long withdrawal and future plans
CEZ's withdrawal from Bulgaria has been troubled by political interference. The initial buyer, Ginka Varbakova's Inercom, was rejected by the Commission for Protection of Competition in 2018 on absurd grounds.
The deal with Eurohold was also blocked on largely political grounds in 2019 and it was not until October 2020 that the anti-trust body finally gave it the green light. In January, the sale was endorsed by the energy regulator, too.
A few weeks ago the general shareholders meetings of the two public companies, CEZ Razpredelenie and CEZ Electro, approved changes to the supervisory boards and auditing committees, with the decisions being conditional on Eastern European Electric Company's acquiring 67% of the share capital by July 31, 2021. Asen Hristov and Kiril Boshov are expected to join the supervisory boards of CEZ Razpredelenie and CEZ Electro, respectively.
The chairman of Eurohold's management board, Kiril Boshov, has commented the group will continue to seek opportunities for further growth in the energy sector on a regional level, including through acquisition of electricity storage capacity. In an interview for SeeNews he pointed out that Eastern European Electric's long-term objective is to turn into one of the leading utility service companies in Southeast Europe.
Meanwhile Eurohold published its development strategy, which includes goals for the consolidated financial results of the group for 2021-2025 following the acquisition of CEZ's companies in Bulgaria. By 2025, Eurohold's energy business is projected to generate revenue of 1.1 billion euro and EBITDA is seen topping 130 million euro. On a group level, Eurohold projects a 7% increase in revenue per year, EBITDA is expected to grow by 13% a year to reach 194 million euro in 2025, and net profit will amount to 108 million euro in 2025.