October 9, 2019

Breakingviews: Some Uniper investors now more equal than others

by Breakingviews.

Some Uniper investors are more equal than others. That’s the upshot of Tuesday’s attempt by Finnish utility Fortum to decide its two-year battle for control of the German utility. The manoeuvre is good for Fortum, which already owns 49.9% of Uniper, and for activist investors Elliott Management and Knight Vinke, which hold 20.5% between them. It’s bad for the remaining third.

At first sight, Fortum’s victory looks far from complete. Buying out the two shareholders at a combined cost of 2.3 billion euros still leaves the state-controlled company short of the 75% threshold that would allow it to call the shots on Uniper’s supervisory board and achieve its main goal of dictating the combined group’s strategy. Fortum is also extending an olive branch to its target’s management and employees, who want the owner of Russian, German and Swedish energy assets to remain independent. The buyer has committed to involve them in talks about how the combined entity will proceed, and not squeeze out minority shareholders for two years.

In reality, the 19 billion euro Fortum will be calling the shots. Not all shareholders cast their votes at annual meetings of German companies, so a large investor can get effective control with little more than 60% of the shares. Fortum will be well above that threshold, assuming regulators approve.

Uniper’s remaining shareholders will not even enjoy the protection that German legislation provides. Fortum could have proposed a so-called domination agreement, whereby investors give up their ability to vote at annual meetings in return for activating a protocol that safeguards their economic interests. But the buyer declined to do so.

Offering to buy out the remaining shareholders at the 29.93 euros per share in cash it is paying Elliott and Knight Vinke would have doubled Fortum’s outlay. Any future offer will presumably be lower. And as Fortum already has what it wants, such a bid may not materialise at all. Little wonder that Uniper’s shares fell as much as 10% on Tuesday morning.

The 10 billion euro Uniper shares some of the blame for the rough treatment of its minority investors. It could have reached an agreement to sell the entire company rather than letting talks drag on. Instead, Fortum has found a way to ensure some shareholders are less equal than others.

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