Main features: }  Major global social and

economic business }  Few large companies

(multi-utilities) that share the energy market

}  Entry barriers (need for large investments, political and legal constraints)

In Europe: }  Tendency to establish a

single and competitive market (Directive 98/30/ECC)

}  Energy production of domestic markets < consumption

}  Was founded in 2000 (merger of VEBA and VIAG) in Germany, Dusseldorf

}  Turnover of 113 billion euro (2010) }  12 regional units and five global units }  Company listed on the Frankfurt Stock Exchange

Main competitors in Europe:

RWE (Germania) GDF Suez (Francia) Iberdrola (Spagna) EDF (Francia)

•  Multiutilities with business mainly in Europe •   Listed companies •   Large cap

}  Taxes estimates taken from the report "Corporate and Indirect Tax Survey 2011" by KPMG (personal taxes are not considered)

}  Tax rate in force in 2011 }  Time horizon of two years (from 29/10/2010 to

26/10/2012) and data weekly frequency }  Beta Debt = 0 }  Market risk premium derived from the study of

Fernandez (Data  sources:  Bloomberg)  

We define the Beta Industry the average beta of the securities of the company (in this case limited to the selected sample) that are part of the same sector: •  Sample companies:

*Risk-Free: ten-year government bonds yield 20/10/2012

•  Beta Unlevered: βU = βL / (1+(1-tc)*D/E)

*Beta Industry is the simple average of the companies’ betas

Beta industry 0,561

Società Beta unleveredGSZ 0,556EON 0,664EDF 0,433RWE 0,621IBE 0,529

Società D/E Raw Beta Tc Risk free(paese)GSZ 1,519 1,119 33,33% 2,23%EON 0,965 1,116 29,37% 1,58%

EDF 2,040 1,021 33,33% 2,23%RWE 1,079 1,095 29,37% 1,58%IBE 1,506 1,087 30,00% 5,62%

The cost of equity (Keu) measures the acceptable performance to investors in a company, considering the risk profile of the same.

o Levered cost of capital (Kel): Kel=Rf+βi*Risk-­‐Premiumi

*(CAPM model) •  Sample companies:

Keu settore 3,75%

Beta industry 0,561Rf ponderato 2,52%RP ponderato 5,58%

Società Market Cap (miliardi) Debt (miliardi) Tc Kd KeuGSZ 41,1 62,43 33,33% 1,50% 3,56%EON 36,52 35,23 29,37% 1,90% 4,13%EDF 31,44 64,12 33,33% 1,40% 3,20%RWE 21,49 23,19 29,37% 1,60% 3,90%IBE 24,24 36,51 30,00% 2,60% 4,08%

WACC is the weighted average cost of capital

•  Hp : Debt = Current Debt

Assumptions: •  growth - g=0 •  Risk-free yield derived from E.On annual review 2011

WACC 5,33%

•  Hp: Debt = Target Debt (equal to average industry D/E by European Power Generation)

WACC 5,21%

D/E 0,965Weight of equity 0,509Tc 29,37%Beta relevered 0,943Kel 9,18%

D/E 1,110Weight of equity 0,474Tc 29,37%Beta relevered 1,000Kel 9,50%

E.On Annual Report 2011

Hp : }  Risk Free 4% }  Wacc After Taxes

European Utilities, Kepler Research, (October 2012)

Hp: }  Tasso Risk Free ? }  Equity Risk Premium ?

WACC7,51%

WACC6,10%