PF Archive

Fire sale

01 11 2002

There are likely to be sales of power assets within the European electricity market over 2002-2003 as a result of: ? downgraded credit ratings for many energy companies; ? low electricity prices in many jurisdictions (especially the UK and Germany); ? competition pressures arising from increasingly liberalised energy markets across Europe; and ? the likelihood of insolvency or the appointment of receivers to manage some electricity companies. Some of the sales will be at distressed prices. Set out below are some key legal issues to be addressed in a sale or acquisition of power assets with a particular emphasis on issues associated with a ?distressed? sale. Consideration and speed A distressed seller will need cash fast so an astute buyer will often offer: ? cash instead of shares or other forms of consideration; and ? the ability to close a transaction quickly (i.e. conducting only high level due diligence and assembling a team with experience and authority to conclude the deal). The emphasis of both parties should be on concluding a commercial deal and exchanging contracts, leaving satisfaction of conditions precedent (including regulatory approvals) and completion to run their course. Acquisitions outside insolvency The sale process chosen by the seller will impact upon value and speed. An auction with multiple bidders may bring the highest value but will usually be at the expense of speed. Negotiating with parties identified by financial advisors may lead to a swifter sales process. Any sale will need to be ?bankruptcy proof' to ensure it is not overturned by the subsequent insolvency of the seller. Thought should be given...