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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 TO
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE
SECURITIES EXCHANGE ACT OF 1934)
SHANDONG HUANENG POWER DEVELOPMENT CO., LTD.
(Name of the Issuer)
HUANENG POWER INTERNATIONAL, INC.
SHANDONG HUANENG POWER DEVELOPMENT CO., LTD.
CHINA HUANENG GROUP CORPORATION
(Name of Person(s) Filing Statement)
AMERICAN DEPOSITARY SHARES, ORDINARY N SHARES
PAR VALUE RMB1.00 PER SHARE
(Title of Class of Securities)
819419102
(CUSIP Number of Class of Securities)
CHINA HUANENG GROUP HUANENG POWER SHANDONG HUANENG POWER
CORPORATION INTERNATIONAL, INC. DEVELOPMENT CO., LTD.
Xiaosong Wang Xiaosong Wang Dan Lu
Fuxing Road A-23 West Wing, Building C Room 1014, A23, Huaneng
Haidian District Tianyin Mansion Building
Beijing, China Fuxingmennan Street Fuxing Road, Haidian
(86-10)6829-7569 Beijing, China District
(86-10)6649-1069 Beijing, China
(86-531)290-2806
(Name, Address and Telephone Number of Persons
Authorized to Receive Notices and Communications on
Behalf of Person(s) Filing Statement)
---------------------
Copies to:
Gregory Miao, Esq. Edmund C. Duffy, Esq. Chun Wei, Esq.
Skadden, Arps, Slate, Skadden, Arps, Slate, Sullivan & Cromwell
Meagher & Flom LLP Meagher & Flom LLP 28th Floor
East Wing Office, Level 4 4 Times Square Nine Queen's Road Central
China World Trade Center 43rd Floor Hong Kong
No.1 Jian Guo Men Wai Avenue New York, NY 10036 (852) 2826-8688
Beijing 100004, China (212) 735-3950
(86-10) 6505-5511
This statement is filed in connection with (check the appropriate
box):
(a)[ ]The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C or Rule
13e-3(c) under the Securities Exchange Act of 1934.
(b)[ ]The filing of a registration statement under the Securities Act of
1933.
(c)[ ]A tender offer.
(d)[X]None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: [ ]
Check the following box if the filing is a final amendment reporting
the results of the transaction: [ ]
INTRODUCTION
This Amendment No. 2 to the Rule 13e-3 Transaction Statement on
Schedule 13E-3 (the "Statement") is being filed with the Securities and
Exchange Commission (the "SEC") by (i) Huaneng Power International, Inc.
("Huaneng Power"), a company incorporated under the laws of the People's
Republic of China, (ii) Shandong Huaneng Power Development Co., Ltd.
("Shandong Huaneng") and (iii) China Huaneng Group Corporation ("Huaneng
Group"), pursuant to Section 13(e) of the Securities Exchange Act of 1934,
as amended, and Rule 13e-3 thereunder. This Statement relates to a proposed
merger (the "Merger") pursuant to an Agreement of Merger by Absorption (the
"Merger Agreement"), dated as of July 18, 2000 and amended as of August 8,
2000, by and between Huaneng Power and Shandong Huaneng. According to the
Merger Agreement, Shandong Huaneng will be merged with and into Huaneng
Power and Huaneng Power will be the surviving company. Shandong Huaneng
will cease to exist and the holders of Shandong Huaneng's ordinary shares
will receive RMB 1.34 for each ordinary A share and US$0.1618 for each
ordinary N share.
A joint proxy statement, dated August 15, 2000, including all
exhibits and annexes thereunto (the "Joint Proxy Statement") has been
delivered to the shareholders of each of Huaneng Power and Shandong Huaneng
in connection with the solicitation of their votes to adopt and approve the
Merger and the Merger Agreement. The Joint Proxy Statement was attached
hereto under Exhibit (a)(5)(iii). The Joint Proxy Statement contains
certain information required to be included in response to the Items of
this Statement and is incorporated herein by reference pursuant to General
Instruction F to Schedule 13E-3. The responses to each Item herein are
qualified in their entirety by reference to the information contained in
the Joint Proxy Statement.
The information contained in this Statement and/or the Joint Proxy
Statement concerning Huaneng Power, Huaneng International Power Development
Corporation ("HIPDC") and Huaneng Group was supplied by Huaneng Power only
and Shandong Huaneng cannot confirm the accuracy or completeness of such
information. Except as provided in the following sentence, the information
contained in this Statement and/or the Joint Proxy Statement concerning
Shandong Huaneng was supplied by Shandong Huaneng only and Huaneng Power
cannot confirm the accuracy or completeness of such information. The pro
forma financial information included in "Unaudited Pro Forma Combined
Financial Information" in the Joint Proxy Statement was supplied by Huaneng
Power only and Shandong Huaneng cannot confirm the accuracy or completeness
of such information. The information extracted from Shandong Huaneng's Form
20-F, dated April 11, 2000, included in "The Companies - Shandong Huaneng"
in the Joint Proxy Statement was extracted at the request of Huaneng Power.
ITEM 2. SUBJECT COMPANY INFORMATION
Item 2 of the Schedule 13E-3 is hereby amended and supplemented as follows:
Shandong Huaneng's ordinary N Shares are not publicly traded. Only
the ADSs that represents such N shares are traded on the New York Stock
Exchange.
ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON
Item 3 of the Schedule 13E-3 is hereby amended and supplemented to provide
additional information as follows:
3(a) The information set forth on Page 61 of the Joint Proxy
Statement is hereby incorporated by reference herein. The business
telephone of Huaneng Group is (86-10)6829 7569.
Huaneng Group is an affiliate of Shandong Huaneng because
Huaneng Group owns 33.09% of the ordinary shares of Shandong Huaneng.
3(b) Huaneng Group, established in 1988 with the approval of the
State Council , is a state owned enterprise implementing Chinese government
policies concerning power industries and investing in power industries and
industries that are related to power generation which include energy, coal
mining, transportation and raw material development.
None of Huaneng Group, Huaneng Power and Shandong Huaneng, or any of
the officers and directors of each of these entities has been convicted in
a criminal proceeding during the past five years (excluding traffic
violations or similar misdemeanors), nor has any of such persons or
entities been a party to any judicial or administrative proceedings during
the past five years that resulted in a judgment, decree or final order
enjoining the person or entity from future violations of, or prohibiting
activities subject to, federal ro state securities laws or a finding of any
violations of federal or state securities laws.
ITEM 4. TERMS OF THE TRANSACTION
Item (a)(2) of the Schedule 13E-3 is hereby amended and supplemented as
follows:
Since only the majority of the votes cast at Huaneng Power's special
general meeting for independent shareholders for which a quorum is met is
needed to approve the merger, it is possible that the merger could be
approved by a small number of shares held by independent shareholders of
Huaneng Power. In addition, the information set forth in the press release,
attached as Exhibit (a)(5) to this Amendment No. 2, is incorporated by
reference herein.
ITEM 5. PAST CONTACTS, NEGOTIATIONS AND AGREEMENTS
Item 5 of the Schedule 13E-3 is hereby amended and supplemented as follows:
5(a) During the past two years, except as disclosed in Schedule
13E-3, Huaneng Group did not engage in any transaction with Shandong
Hauneng, or any of its affiliates or any of Shandong Huaneng's officers and
directors.
5(b) During the past two years, except as disclosed in Schedule
13E-3, none of Huaneng Group or any of its officers and directors engaged
in any negotiations, transactions or material contacts with Shandong
Huaneng in connection with a merger, consolidation, acquisition involving
Shandong Huaneng, or a tender offer involving shares of Shandong Huaneng,
except that Mr. Li Xiaopeng and Mr. Wang Xiaosong, in their respective
capacities as Chairman and Vice Chairman of Huaneng Power, were involved in
merger discussions between Huaneng Power and Shandong Huaneng as disclosed
in the Schedule 13E-3 and Amendment No. 1 to such Schedule.
5(c) During the past two years, except as disclosed in Schedule
13E-3, neither Huaneng Group nor any of their respective officers and
directors conducted any negotiations, or engaged in any transactions or
material contacts with a view to implement a merger or acquisition between
these two entities.
5(d) There are no agreements or arrangements involving the shares of
Shandong Huaneng to which either Huaneng Group or any of their respective
officers and directors is a party.
ITEM 6. PURPOSE OF TRANSACTIONS AND PLANS OR PROPOSALS
Item 6 of the Schedule 13E-3 is hereby amended and supplemented as follows:
6(b) None of Huaneng Group, any of their respective officers and
directors will acquire any securities of Shandong Huaneng as a result of
the merger between Huaneng Power and Shandong Huaneng.
6(c)(1)-(8) There are no plans, proposals or negotiations that relate
or would result in any extraordinary transactions involving Huaneng Group,
Shandong Huaneng or any of their respective officers and directors other
than those which are disclosed in the original Schedule 13E-3.
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS.
Item 7(b) is amended and supplemented as follows:
7(a)-(d) Huaneng Group expressly adopts the analysis, views and
conclusions of the boards of directors of Huaneng Power and Shandong
Huaneng and their respective financial advisors as to the purposes,
fairness, alternatives, reasons and effects of the merger between Huaneng
Power and Shandong Huaneng.
Prior to the merger, Huaneng Group owns 33.09% of the ordinary shares
of Shandong Huaneng. As a result of the merger, Shandong Huaneng will cease
to exist and Huaneng Group will receive cash as consideration for the
ordinary shares of Shandong Huaneng held by it, and will have no direct
ownership interest in the surviving company. Huaneng Group through its
51.98% ownership of HIPDC, will continue to own 42.17% of Huaneng Power
after the merger including its ownership of the assets and earnings of
Shandong Huaneng.
The merger transaction will not cause any detriment to Huaneng Power.
After the merger, Shandong Huaneng will lose its separate corporate
identity and cease to exist as an independent company.
ITEM 8. FAIRNESS OF THE TRANSACTION
Item 8 (a) of the Schedule 13E-3 is hereby amended as follows:
(a) Each of Huaneng Power, Shandong Huaneng and Huaneng Group
believes that the merger is fair to unaffiliated shareholders of Shandong
Huaneng. In making the fairness judgments, the boards of Huaneng Power and
Shandong Huaneng adopt the analysis and conclusions of their respective
financial advisors.
(b) Huaneng Group expressly adopts the analysis and views of Shandong
Huaneng and Huaneng Power as its basis for their belief that the merger is
fair to unaffiliated shareholders of Shandong Huaneng.
(c)-(e) Each of Huaneng Power, Shandong Huaneng, and Huaneng Group
believes that the merger is procedurally fair to the unaffiliated
shareholders of Shandong Huaneng because of the following reasons:
1. Shandong Huaneng retained independent legal and financial
advisors to negotiate the merger with Huaneng Power.
2. Negotiations regarding the merger consideration and other
aspects of the proposed merger has been conducted at arms-length by Huaneng
Power and Shandong Huaneng throughout the process. As a result of such
arms-length negotiations, the offer price was increased from RMB1.00 to RMB
1.34 per share by Huaneng Power.
3. The affiliated directors were not present during the
deliberation of the unaffiliated directors of the merger proposal.
4. Though the merger is not structured to require the approval
of the majority of the unaffiliated shareholders, the unaffiliated
shareholders can veto the transaction if they decide to vote against the
merger. It is especially true because 40% of Shandong Huaneng's stock is
owned by two large unaffiliated shareholders, while Huaneng Group owns only
33% of Shandong Huaneng's stock.
For the above reasons, the boards of Huaneng Power and Shandong
Huaneng, and by adopting the above analysis, Huaneng Group, each believes
that the merger is fair to the unaffiliated shareholders from a procedural
point of view despite the absence of an independent board committee of
Shandong Huaneng which is unnecessary under the circumstances.
The financial advisors of Huaneng Power and Shandong Huaneng have
concluded that the factors which they omitted in their analysis of the
fairness of the transaction were not material in their evaluation of the
transaction. The financial advisors did not consider those omitted factors
because such factors are not applicable to analyzing the fairness of a
transaction involving Chinese power companies. Huaneng Power, Shandong
Huaneng and Huaneng Group adopts such analysis of the financial advisors.
Shandong Huaneng's board considered the fact that the US$0.1618 per
ordinary N share and the RMB 1.34 per ordinary A Share represents a 10.2
multiple of Shandong Huaneng's net earnings per share for the year ended
December 31, 1999, and the average share price represented by ADS for the
four-week period ended July 17, 2000 represents a much smaller multiple of
Shandong Huaneng's net earnings per share for 1999. It concluded,
therefore, that the merger consideration is fair to the unaffiliated
shareholders. Also, the requirement that the merger requires the approval
of two- thirds of Shandong Huaneng's shareholders led the board to believe
that should the shareholders think that the merger is unfair, they would
have adequate voting power to block the transaction. The board also
considered that under the terms of the merger agreement Shandong Huaneng
cannot terminate the merger agreement even if it is presented with a
superior acquisition proposal. The board of Shandong Huaneng did not think
that such provision would materially adversely affect the ability of
Shandong Huaneng to obtain a better acquisition proposal because the
receipt of a superior acquisition proposal is unlikely given the fact that
there is no corporate control market for companies generally, and large
power companies in particular, in the PRC. The board also noted the fact
that the merger requires approvals from relevant Chinese regulatory
authorities in order to ensure that the merger is in full compliance with
the PRC law. Although Shandong Huaneng's board of directors believes that
the historical trading price of its ADSs did not fully reflect the going
concern value of Shandong Huaneng, the board did not quantify the going
concern value of Shandong Huaneng. The board of directors of Shandong
Huaneng believes that the merger consideration essentially reflects the
going concern value of Shandong Huaneng and is the best alternative for
providing such value to its shareholders.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS
Item 9 is hereby amended and supplemented as follows:
The material economic, operation and financial assumptions provided
by Shandong Huaneng and Huaneng Power International in the due diligence
process which were used in J.P. Morgan's analysis are summarized as
follows:
TARIFF
The Company's year 2000 on-grid tariff projections for existing plants will
remain constant for the next 15 years ("the projection period"), except for
Weihai Phase II Unit 4, which has received permission to raise its Rmb 285
/ MW tariff to RMB 376 / MW in May 2000 but will remain constant starting
year 2002 for the rest of the projection period.
GENERATION HOURS
The year 2000 total generation hour projections of 5383, 5000, and 5500
hours for its three existing plants, namely Dezhou, Jining and Weihai
respectively, will remain constant for the next 15 years. Future expansion
plant (Dezhou Phase III) and the newly operational Rizhao plant will use
the average of these three projections going forward.
FUEL COSTS
Shandong Huaneng has projected an annual coal cost (per mm MWh) increase of
3%, starting year 2000 to 2004 and then maintained the same level for the
rest of the projection period.
CAPACITY
Shandong Huaneng's existing power plants and its projected future plant
expansion and acquisition are listed in the table below:
Attributable
PLANT NAME capacity Status
- ------------------- ------------------- ---------------------------
Existing plants
Dezhou Phase I & 1,200 Operational
II
Jining 225 Operational until 2004
year-end
Weihai Phase I & 510 Operational
II
Rizhao Phase I 178.5 Begins commercial
-----
operations in April 2000
SUB-TOTAL 2,113.5
Plants under
construction
Dezhou Phase III 660 To be completed in 4Q 2002
(a)
Dezhou Phase III 660 To be completed in 4Q 2003
(b) ---
SUB-TOTAL 1,320
Future
acquisitions
Acquire remaining 340 To occur in early 2001
40% of Weihai
TOTAL 3,773.5
- ------------------- ------------------- ---------------------------
CapEx
Acquisition CapEx: the acquisition of the remaining 40% of Weihai in 2001
will have an average cost of Rmb 4,356 per KW based on the construction
cost and capitalized interest assumptions during the construction period.
Construction: According to Shandong Huaneng's projections, Dezhou Phase III
will have an average construction cost of Rmb 5,190 per KW including
capitalized interest cost. FINANCING Acquisition financing: the Weihai
acquisition in 2001 will be 75% debt-financed at an interest rate of 8.0%.
Debt borrowed will be paid back over 10 years beginning the year after the
acquisition.
Construction: the construction cost of Dezhou Phase III will be 75%
debt-financed at an interest rate of 8.0% with interest expenses
capitalized during construction. Debt borrowed plus capitalized interest
during construction will be paid back over 12 years upon operation of the
plant.
OTHER ECONOMIC AND FINANCIAL PROJECTIONS
o Depreciation - 15 year, straight line (standard US GAAP)
o Weighted average income tax rate of 30.0%
o Dividend pay-out rate of 53.5% (as equal to that of 1999)
o Cash and cash equivalent holdings maintained at the 1999 levels
o Interest rates (current weighted average cost on each debt type)
- - Existing debt of various forms: 6.21%
- - Necessary to Finance generated in the projected period: 8.0%
- - Interest earned on excess cash and deposits: 3.0%
Other expense margins maintained at 1999 levels, to be consistent with the
Company's own modeling and forecasting methodology
In rendering its opinion, J.P. Morgan took into account the value of
Shandong Huaneng on a stand-alone basis using the discounted cash flow
("DCF") method. The internal forecasts and projections provided to J.P.
Morgan are contained in the summary of projections and assumptions used by
J.P. Morgan in completing its DCF analysis, as follows.
TARIFF
The Company's 2000 on-grid tariff projections for existing plants will
remain constant for the next 15 years ("the projection period"), except for
Weihai Phase II Unit 4, which has received permission to raise its Rmb 285
/ MW tariff to RMB 376 / MW in May 2000 but will remain constant starting
year 2002 for the rest of the projection period.
GENERATION HOURS
According to Shandong Huaneng's projection, the year 2000 total generation
hour projections of 5383, 5000, and 5500 hours for its three existing
plants, namely Dezhou, Jining and Weihai respectively, will remain constant
for the next 15 years. Future expansion plant (Dezhou Phase III) and the
newly operational Rizhao plant will use the average of these three
projections going forward. FUEL COSTS Shandong Huaneng has projected an
annual coal cost (per mm MWh) increase of 3%, starting year 2000 to 2004
and then maintained the same level for the rest of the projection period.
CAPACITY
Shandong Huaneng's existing power plants and its projected future plant
expansion and acquisition are listed in the table below:
Attributable
PLANT NAME capacity Status
- ------------------- ------------------- ---------------------------
Existing plants
Dezhou Phase I & 1,200 Operational
II
Jining 225 Operational until 2004
year-end
Weihai Phase I & 510 Operational
II
Rizhao Phase I 178.5 Begins commercial
-----
operations in April 2000
SUB-TOTAL 2,113.5
Plants under
construction
Dezhou Phase III 660 To be completed in 4Q 2002
(a)
Dezhou Phase III 660 To be completed in 4Q 2003
(b) ---
SUB-TOTAL 1,320
Future
acquisitions
Acquire remaining 340 To occur in early 2001
40% of Weihai
TOTAL 3,773.5
- ------------------- ------------------- ---------------------------
CapEx
Acquisition CapEx: According to Shandong Huaneng's projection, the
acquisition of the remaining 40% of Weihai in 2001 will have an average
cost of Rmb 4,356 per KW based on the construction cost and capitalized
interest assumptions during the construction period.
Construction: According to Shandong Huaneng's projections, Dezhou Phase III
will have an average construction cost of Rmb 5,190 per KW including
capitalized interest cost. FINANCING Acquisition financing: According to
Shandong Huaneng's projection, the Weihai acquisition in 2001 will be 75%
debt-financed at an interest rate of 8.0%. Debt borrowed will be paid back
over 10 years beginning the year after the acquisition. Construction:
According to Shandong Huaneng's projection, the construction cost of Dezhou
Phase III will be 75% debt-financed at an interest rate of 8.0% with
interest expenses capitalized during construction. Debt borrowed plus
capitalized interest during construction will be paid back over 12 years
upon operation of the plant.
OTHER ECONOMIC AND FINANCIAL PROJECTIONS
o Depreciation - 15 year, straight line (standard US GAAP)
o Weighted average income tax rate of 30.0%
o Dividend pay-out rate of 53.5% (as equal to that of 1999)
o Cash and cash equivalent holdings maintained at the 1999 levels
o Interest rates (current weighted average cost on each debt type)
- - Existing debt of various forms: 6.21%
- - Necessary to Finance generated in the projected period: 8.0%
- - Interest earned on excess cash and deposits: 3.0%
Other expense margins maintained at 1999 levels, to be consistent with the
Company's own modeling and forecasting methodology
Utilizing the above summarized projections and assumption, as well as
historical financials of Shandong Huaneng, J.P. Morgan estimated a range of
equity values of Shandong Huaneng based on the sum of the net present value
of Shandong Huaneng's stream of projected free cash flows for the next 15
years, plus the net present value of the terminal value representing the
value of all future free cash flows of Shandong Huaneng after the 15th
year, and minus the value of Shandong Huaneng's net debt. As a result, the
DCF analysis indicated a valuation range of RMB1.17 to RMB1.46 per Shandong
Huaneng ordinary share.
A delay in obtaining the Zhonghua report would result in a delay in
the closing of the proposed merger.
ITEM 11 INTEREST IN SECURITIES OF THE SUBJECT COMPANY
Item 11 of the Schedule 13E-3 is hereby amended and supplemented as
follows:
(a) Huaneng Group owns 33.09% of the ordinary shares of Shandong
Huaneng. None of its officers and directors own any securities of Shandong
Huaneng either beneficially or of record.
(b) None of Huaneng Group and each of its respective officers and
directors has engaged in any transactions involving the securities of
Shandong Huaneng during the past 60 days.
ITEM 16 EXHIBITS
Item 16 is hereby amended and supplemented as follows:
Exhibit No. Description
(a)(5) Press Release by Huaneng Power and Shandong
Huaneng, dated September 14, 2000.
SIGNATURES
After due inquiry and to the best of its knowledge and belief, each of
the undersigned certifies that the information set forth in this statement
is true, complete and correct.
HUANENG POWER INTERNATIONAL, INC.
By: /s/ XIAOSONG WANG
__________________________________________
Name: XIAOSONG WANG
Title: VICE-CHAIRMAN
SHANDONG HUANENG POWER DEVELOPMENT CO., LTD.
By: /s/ XINYANG YU
__________________________________________
Name: XINYANG YU
Title: CHAIRMAN
CHINA HAUNENG GROUP CORPORATION
By: /s/ XIAOSONG WANG
__________________________________________
Name: XIAOSONG WANG
Title: VICE-PRESIDENT
Dated: September 14, 2000
INDEX TO EXHIBITS
Exhibit No. Description
(a)(5) Press Release by Huaneng Power and Shandong Huaneng, dated
September 14, 2000.