November 15, 2018 / 4:00 PM / 7 months ago

Elliott's raised stake in Uniper to pave way for Fortum deal: sources

FRANKFURT (Reuters) - Activist fund Elliott’s raised stake in Uniper (UN01.DE) could pave the way for a new takeover attempt by Finland’s Fortum (FORTUM.HE), which is already the German energy group’s largest shareholder, according to people close to the matter.

A logo of German energy utility company Uniper SE is pictured in the company's headquarter in Duesseldorf, Germany, March 8, 2018. REUTERS/Thilo Schmuelgen

Elliott raised its stake to 16.51 percent on Nov. 7, Uniper disclosed in a regulatory filing late on Wednesday, up from 12.8 percent previously.

This extra clout could help break a deadlock in a takeover stalemate between Uniper’s management and Fortum, two sources familiar with the matter said.

Shares rose as much as 3.7 percent on the news and still traded up 1.3 percent at 1557 GMT.

Fortum became Uniper’s largest investor in June after buying a 47 percent stake from E.ON (EONGn.DE) for 3.8 billion euros ($4.3 billion). Fortum had sought a full takeover of Uniper but was rebuffed by Uniper’s management who saw the offer as hostile.

Fortum has been prevented from consolidating Uniper in part because of a problematic asset: a water testing license in Russia, which is still owned by Uniper’s Russian subsidiary Unipro (UPRO.MM).

Russian authorities limited Fortum’s stake in Uniper to 50 percent, effectively blocking a full takeover due to the license which is deemed strategic by Russia.

Investors, however, feel the matter can be resolved by carving the water testing license out of a deal, the sources said.

Elliott’s Uniper stake could now be used to force Uniper’s management to enter talks about how to implement a so-called profit transfer and domination agreement with Fortum, the sources said.

“Fortum and Elliott have a combined de facto 75 percent majority at a shareholder meeting,” one of the sources close to the matter said, adding this referred to the shareholders present at the group’s annual general meeting.

At Uniper’s past two general meetings, shareholder turnout averaged about 74 percent, which would give Elliott and Fortum a comfortable majority of more than three-quarters of the share capital present.

Fortum and Uniper declined to comment. Elliott was not immediately available for comment.

The Finnish group has said it is satisfied with its current stake, but Fortum also believes the water license issue can be resolved.

“We are also testing tapwater in our power plants, but we have outsourced it to a Russian provider,” Fortum Chief Executive Pekka Lundmark said earlier this week. “So our understanding is that this is a limitation that is more of a technical nature.”

Uniper Chief Executive Klaus Schaefer has argued that Unipro is an independently listed entity and that Uniper’s management cannot instruct its Russian unit what to do.

While a motion to enter talks about a domination of Uniper by Fortum and other investors could be voted on at the next annual general meeting, scheduled for May 22, 2019, the parties could also demand an extraordinary shareholder meeting, the sources said.

Editing by Edward Taylor and Tassilo Hummel

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