Fainé wants to undo Naturgy's Gordian knot

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Background noise, experts say, is one of the most difficult things to measure. Even when it's massive and annoying. At Naturgy, the main Spanish gas company and the country's third largest electricity company, the noise of recent years has ended in an explosion. Its main shareholder, CriteriaCaixa (26.7%), is negotiating with the Abu Dhabi National Energy Company (Taqa) to enter the company. The Emirates company is holding talks with Naturgy shareholders – CriteriaCaixa and the CVC (20.7%) and GIP (20.6%) funds – as confirmed to the National Securities Market Commission (CNMV). If the negotiations succeed, Taqa should launch a takeover bid for the entire capital of Naturgy, a strategic company for Spain that the Government closely controls and in which CriteriaCaixa, the business holding company led by Isidro Fainé, has decided to rearrange the pieces of the board. .Naturgy has four large shareholders, one with an industrial vocation —CriteriaCaixa (26.7%)— and three large funds —CVC (20.7%), GIP (20.6%) and IFM (15%)—. Each one with their interests, their strategy and their calendar. Two of the big ones, CVC and GIP, have been looking for the exit door for some time; The other big one, IFM, which came riding through a takeover bid three years ago, wants to command more, double its weight on the board – from one to two seats – and limit the room for maneuver of executive president Francisco Reynés, appointed in 2018. An entanglement that makes governance difficult and that has forced CriteriaCaixa, the holding company of the La Caixa group, to act as a big brother. The movement is further proof that Reynés has the full support of the first shareholder, which when he has been necessary – and lately it has been – has published explicit statements in support of it, something unusual. He was in July 2023 and in April of this year. All to address a corporate governance problem in which noise is accumulating. No element is missing. The American financial giant BlackRock, with stakes in Repsol, Enagás, Redeia, Santander, BBVA, Sabadell and ACS, has bought GIP for 11.4 billion in an operation that will close at the end of the year and whose consequences for Naturgy, according to sources familiar with the situation. , are to be determined. The fragile balance of power pact between shareholders that was agreed upon two years ago is in question. The Australian IFM entered the company through a convulsive partial takeover bid, conditioned by the Government, which did not cover all the objectives. It remained at 10.8% of the capital and caused a head-on clash with CriteriaCaixa. The entity increased its participation to make it difficult for IFM to purchase shares. Despite everything, Naturgy reorganized its board of directors at the beginning of 2022 to bring in IFM with a director and to give an extra seat to Criteria to have three representatives. CVC and GIP have two directors each, and there are also three independent directors and one executive director (the president of the group, Francisco Reynés).

Strategic company

The Government's antennas have been deployed and focused on Naturgy for some time. Naturgy is a strategic company for the country. It supplies a third of the natural gas consumed in Spain, controls 49% of the gas pipeline (Medgaz) with Algeria – a shareholder with 4.1% through Sonatrach – and is permanently under scrutiny. The Government knows – as managers and shareholders know – that from the point of view of corporate governance the resolution of a business problem is pending. The Executive is suspicious of the funds and opposes the basic formula of business manuals to extract the maximum value from a company: divide it and sell it in parts. At Naturgy, the division plan – publicly questioned by Vice President Teresa Ribera – is called Plan Gemini. It was approved more than two years ago by the council and board, but it is paralyzed. Due to the situation of the markets and the opposition of the Government. Geminis contemplated the division of the group into two companies: one with the regulated gas and electricity assets (grid infrastructure) in Spain and the rest of the countries where the company is present and the other, with the liberalized businesses (generation, both conventional, as renewable, and energy marketing and services). The company's position is pragmatic: Gemini is a project that makes complete strategic sense, but the conditions do not exist for it to be executed. With the markets in suspense due to the international situation and unstable energy prices, analysts They wonder if Naturgy's managers, with Reynés at the helm, will be able to fulfill the planned plans, focused on the energy transition and renewables, or have they been overly optimistic. Bankinter's analysis, signed by Arantzatzu Bueno, places its focus there. Bueno observes “a less favorable environment for gas and electricity prices than anticipated in the Plan,” which leads to “more conservative estimates.” The analysis specifies that the price of gas is 23 euros/MGW against 55 euros and 47 euros in Naturgy's plan for 2024 and 2025 respectively. The consumption of natural gas in Spain is not going well either. It was reduced by 11% in 2023, when it reached 323,753 gigawatt hours (GWh), according to data from the Corporation for Strategic Reserves of Petroleum Products (Cores). Of course, doubts are listed on the stock market. With the best results in history in 2023 – 1,986 million net profit, 20% more than in the previous year – Naturgy lost 25% in the year – until the publication of the conversations with Taqa – and 17% in the last five exercises. The company also recognizes that the company's price has been weighed down in the first months of the year by its exclusion from the MSCI indices. It is a serious point. The MSCI indices are prepared by MSCI (formerly Morgan Stanley Capital International) and are made up of a series of reference values ​​that, together, reflect the evolution of the most important markets in the world. The IFM takeover bid and the shareholding structure have left the floating capital, the tradable capital in the market, at just 13%, which has caused the departure of the MSCI indices. Many investors whose operations are indexed to these indices have sold. Despite the noise, the company and its managers use numbers as insulating material. In 2023, Naturgy recorded the best year in its history despite the decrease in energy prices and the high volatility of the market, with a significant increase in its gross operating result (ebitda) that reached 5,475 million euros (11 % further). All based on the improvement of margins in electricity and gas, the revisions of network rates in Latin America and the new capacity in renewables. Naturgy, the company specifies, maintains its commitment to renewables with 6.5 GW in operation at the end of 2023 (+18%). “Looking ahead to 2024 and 2025,” says Renta 4 analyst Ángel Pérez, “they expect 1.2 GW and 2.3 GW of additional capacity to come into operation respectively.” In general, these are good numbers that have allowed the company , among other things, to face investments -3,000 million- and the dividend -1,634 million- without breaking a sweat.But companies do not live in the past. And this year is going to be difficult. Naturgy is not currently quantifying its results objectives for 2024 due to the extreme volatility of the energy markets and also due to the unexpected weather. The analysis by Bueno (Bankinter) shows how the consensus of the analyzes anticipates a possible drop in the gross EBITDA result of up to 11%, which would place it at 4,888 million. In any case, CriteriaCaixa's movement leaves out of place, outdated, some of the means of internal pressure used by the funds, such as the election of a CEO to “accompany” Reynés — it is not on the table at the moment, they say. the sources consulted—or the review of the salary of the chief executive—5.86 million in 2022 and 5.47 million in 2023—. The meeting held in April approved the salaries of the company's directors, with 76% of votes in favor. To be continued. Follow all the information on Economy and Business on Facebook and xor in our weekly newsletter