On Wednesday, the Danish State represented by the Ministry of
Finance and DONG Energy A/S - one of the leading energy groups in
Northern Europe, announced an agreement with
The Goldman Sachs Group, Inc.
) and two Danish pension funds. Under the agreement, funds
managed by the Merchant Banking Division of Goldman and the two
pension funds - Arbejdsmarkedets Tillægspension (ATP) and PFA
Pension Forsikringsaktieselskab (PFA) will subscribe for new
shares worth DKK 11 billion (around $2 billion) in DONG Energy.
DONG, one of the leading European utility companies succumbed to
high debt, feeble demand for power and the low profitability of
gas-fired power plants. Therefore, the capital infusion by
Goldman and the Danish funds will strengthen DONG Energy's
Notably, in Feb 2013, DONG planned to divest DKK 10 billion ($1.8
billion) of non-core assets in 2013-14, reduce costs by DKK 1.2
billion and issue shares worth DKK 6 to 8 billion. Therefore,
since the announcement, DONG has vended assets over DKK 8 billion
and announced approximately 1,000 layoffs.
Terms of the Agreement
Goldman will purchase new shares worth DKK 8 billion and acquire
19% stake, while ATP will subscribe for DKK 2.2 billion and PFA
for DKK 0.8 billion. Each of the two pension funds will hold 5%
and 2% stake, respectively.
News shares will be subscribed on the basis of the valuation of
DONG Energy of DKK 31.5 billion prior to the capital increase.
Notably, after the deal is completed, the Danish state's
ownership would be reduced from around 81% to about 60%.
Moreover, the aggregate ownership interest of the existing
minority shareholders will be lowered from about 19% to 14%.
Further, the existing minority shareholders will be offered to
take part in the capital increase on equal terms with the new
As per the terms of the agreement, Goldman and the two pension
funds will seek an initial public offering (IPO) of DONG Energy
when the conditions are right, with the clause of completing it,
following the release of results for financial year 2017. If the
stock flotation is not complete by that time, new investors will
be given the option to vend their shares to the Danish State on
Benefits of the Agreement
With the new capital infusion, DONG Energy is poised to
capitalize on its growth potential and fully execute its
financial action plan. The firm plans to invest significantly in
offshore wind turbines and exploration and production of oil and
gas, once the deal is closed.
On the other side, impressed by the prudent management and
ambitious goals of DONG Energy, Goldman and the two funds
investing in the firm will help the Danish State pursue growth
opportunities and supply environmentally friendly energy and
infrastructure to the European markets. Moreover, Goldman, ATP
and PFA believe attractive growth prospects and a strong market
position of DONG Energy will provide their customers with solid
Fundamentally, we expect Goldman to benefit from its well managed
global franchise, strong capital base and industry leading
position in trading and asset management. Goldman's prudent
business model and strong fundamentals are expected to deliver
better earnings in the upcoming quarters. Currently, Goldman
carries a Zacks Rank #3 (Hold).
Some major investment brokers that are worth considering include
GAIN Capital Holdings, Inc.
) with a Zacks Rank #1 (Strong Buy).
The Charles Schwab Corporation
) carry a Zacks Rank #2 (Buy).
E TRADE FINL CP (ETFC): Free Stock Analysis
GAIN CAP HLDGS (GCAP): Free Stock Analysis
GOLDMAN SACHS (GS): Free Stock Analysis
SCHWAB(CHAS) (SCHW): Free Stock Analysis
To read this article on Zacks.com click here.