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  • Europe Equity Research 20 July 2010

    International Power and GDFSuez International

    GSZ.PA, GSZ FP 24.32

    Comparing the two businesses

    IPR.L, IPR LN 317p

    Equity Ratings and Price Targets Mkt Cap Price RatingCompany Symbol ($ mn) Currency Price Cur GDF SUEZ(R) GSZ.PA EUR 24.32 International Power Plc(R) IPR.L GBp 317 Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. (R) under applicable law and/or J. P. Morand price target for this company have been removed. All prices as of 16 Jul 10.

    See page 21 for analyst certification and important disclosures, including non-US aJ.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, invhave a conflict of interest that could affect the objectivity of this report. Investors should consider this repinvestment decision.

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    Yesterday morning IPR made an announcement regarding a potential corporate combination with GDFSuez. In our view the key points from the announcement were:

    Deal structure: GDFSuez would put its international assets (outside Europe) and certain assets in the UK and Turkey into IPR and in return IPR would issue new shares to GDFSuez.

    Retain London listing: The enlarged group would retain its listing on the London Stock Exchange.

    GDFSuez would be the majority shareholder: No details are provided regarding what GDFSuezs stake in the combined group would be, only that it would be a majority owner.

    IPR board considering the combination: IPR's board states that the proposed combination has strategic rationale and there would be synergy potential.

    Our initial view is that there is considerable strategic rationale for a transaction.

    Geographical overlap: IPR and GDFSuezs international assets have a considerable amount of overlap, specifically in the UK, North America and Middle East.

    Low CO2 intensity: Both companies have generation fleets with low CO2 intensity and the combination of the two companies would leave the combined group well placed if there are more restrictions on CO2 world- wide.

    Capacity growth: The combined entity would have 7.4GW of net capacity under construction, providing it with 18% capacity growth over the next 4 years.

    Despite the strategic logic behind the deal, today's announcement contains no information on timeline or merger ratios and as such it remains in its preliminary stages.

    This document is being provided for the exclusive use of UNIVERSIDAD ESAN at UNIVERSIDAD ESANElectric Utilities

    Edmund ReidAC

    (44-20) 7155 6676 edmund.reid@jpmorgan.com

    Nathalie F Casali (44-20) 7325-9023 nathalie.x.casali@jpmorgan.com

    J.P. Morgan Securities Ltd.

    Figure 1: IPR/ GSZ International combined net capacity by region

    North Americ32%

    Europe21%

    Middle East and Asia22%

    Latin America17%

    Australia8%

    Source: Company reports and J.P. Morgan es

    J.P.Morgan plc is acting as afinancial adviser to InternatioPower Plc on its preliminarydiscussions with GDF Suez Sregarding a possible combinaof International Power and GSuez's Energy International Business Areas (outside Euro Price Target Prev Cur Prev

    gan Chase & Co policy the recommendation

    nalyst disclosures. estors should be aware that the firm may

    ort as only a single factor in making their

    and certain assets in the UK and Turkey ("GDF Suez Energy International"), to create an enlarged International Power which would be listed on the Official List of the Financial Services Authority ("Official List") and traded on the Main Market of the London Stock Exchange as announced on 19 July 2010.

  • 2

    Europe Equity Research 20 July 2010

    Edmund Reid (44-20) 7155 6676 edmund.reid@jpmorgan.com

    Company Data Price () 24.32Date Of Price 16 Jul 1052-week Range () 31.34 - 22.64Shares O/S (mn) 2,261

    GDF SUEZ (GSZ.PA;GSZ FP)FYE Dec 2009A 2010E 2011E 2012E 2013EAdj. EPS FY () 2.11 1.89 2.12 2.20 2.24EBITDA FY ( mn) 14,012 14,824 16,214 16,978 17,438Headline EPS FY () 2.03 2.19 2.09 2.20 2.24Adj P/E FY 11.5 12.9 11.5 11.1 10.8EV/EBITDA FY 7.2 7.0 6.5 6.2 5.9Gross Yield FY 6.0% 6.2% 6.4% 6.5% 6.7%DPS (Net) FY () 1.47 1.50 1.54 1.59 1.64EBITDA margin FY 17.5% 18.4% 19.6% 19.3% 19.0%Source: Company data, Bloomberg, J.P. Morgan estimates.

    Company Data Price (p) 317Date Of Price 16 Jul 1052-week Range (p) 354 - 243Shares O/S (mn) 1,529

    International Power Plc (IPR.L;IPR LN)FYE Dec 2009A 2010E 2011E 2012E 2013EAdj. EPS FY (p) 33.39 29.48 27.30 31.02 32.84Adj P/E FY 9.5 10.7 11.6 10.2 9.6Adj EBITDA FY ( mn) 1,535 1,337 1,258 1,327 1,363EV/EBITDA FY 6.3 6.9 7.2 6.6 6.2Pretax Profit Adjusted FY ( mn)

    718 659 601 695 744

    Net Debt/EBITDA (Wrapper) FY

    3.3 3.6 3.6 3.2 2.8

    DPS (Net) FY (p) 13 13 13 13 13Net Yield FY 4.0% 4.0% 4.0% 4.0% 4.1%Source: Company data, Bloomberg, J.P. Morgan estimates.

    Table of Contents Summary ...................................................................................3 Overview of the combined entity ............................................4 Geographical split ........................................................................................................4 Fuel split ......................................................................................................................5 Contract split................................................................................................................6 Assets under construction ............................................................................................7 Comparison of Financials........................................................9 Appendix 1 IPR assets ........................................................13 Appendix 2 GDF Suez International Assets ......................15

    This document is being provided for the exclusive use of UNIVERSIDAD ESAN at UNIVERSIDAD ESAN

  • 3

    Europe Equity Research 20 July 2010

    Edmund Reid (44-20) 7155 6676 edmund.reid@jpmorgan.com

    Summary Yesterday morning (July 19th) IPR made an announcement regarding a potential corporate combination with GDFSuez. In our view the key points from the announcement were:

    Deal structure: GDFSuez would put its international assets (outside Europe) and certain assets in the UK and Turkey into IPR and in return IPR would issue shares to GDFSuez;

    Retain London listing: The enlarged group would retain its listing on the London Stock Exchange;

    GDFSuez would be the majority shareholder

    IPR board considering the combination: IPR's board states that the proposed combination has strategic rationale and there would be synergy potential.

    The exact text of the announcement is enclosed below.

    The Board of International Power announces that it is in preliminary discussions with GDF Suez SA ("GDF Suez") regarding a possible combination of International Power and GDF Suezs Energy International Business Areas (outside Europe) and certain assets in the UK and Turkey ("GDF Suez Energy International"), to create an enlarged International Power which would be listed on the Official List of the Financial Services Authority (Official List) and traded on the Main Market of the London Stock Exchange. The Board of International Power believes that the possible combination warrants consideration given the strategic rationale and potential for synergies as a result of the combination and discussions are continuing between the two parties regarding the terms of the proposed combination (including the amount of net debt that would be contributed with GDF Suez Energy International). If the combination were to be completed, it is expected that shares in International Power would be issued to GDF Suez and that, as a result, GDF Suez would be the majority shareholder in the enlarged International Power.

    IPR and GDFSuez have previously discussed a business combination along these lines. On 18th January 2010 IPR made an announcement stating that

    it has held preliminary discussions regarding a potential combination of International Power and certain power assets of GDF Suez S.A ("GDF Suez"). No agreement was reached between International Power and GDF Suez and discussions are no longer ongoing.

    Yesterdays announcement provides considerably more detail regarding the potential structure of any deal. Importantly, in our view, GDFSuez has provided new disclosures regarding the assets which would be included in a potential transaction with detailed financial information for the last three years. We believe that this should allow shareholders to more closely evaluate the worth of the assets.

    Our initial view is that there is considerable strategic rationale for a transaction.

    This document is being provided for the exclusive use of UNIVERSIDAD ESAN at UNIVERSIDAD ESAN

  • 4

    Europe Equity Research 20 July 2010

    Edmund Reid (44-20) 7155 6676 edmund.reid@jpmorgan.com

    Geographical overlap: IPR and GDFSuezs international assets have a considerable amount of overlap, specifically in the UK, North America, Middle East and Asia;

    Low CO2 intensity: Both companies have generation fleets with low CO2 intensity and the combination of the two companies would leave the combined group well placed if there are more restrictions on CO2 worldwide;

    Capacity growth: The combined entity would have 7.4GW of net capacity under construction, providing it with 18% capacity growth over the next 4 years.

    Despite the strategic logic behind the deal, yesterdays announcement contains no information on timeline or merger ratios and as such it remains in its preliminary stages.

    Ove