Fainé wants to undo the Naturgy Gordian complex a job

Experts say background noise is one of the hardest things to measure. Even when it's huge and annoying. At Naturgy, Spain's main gas company and the country's third-largest electricity company, the hype of recent years has ended with a bang. Its main shareholder, CriteriaCaixa (26.7%), is negotiating with Abu Dhabi National Energy Company (TAQA) to enter the company. The UAE company is in talks with Naturgy's shareholders – CriteriaCaixa funds, CVC (20.7%) and GIP (20.6%) – as confirmed to the National Securities Market Commission (CNMV). If negotiations are successful, TAQA should launch an offer to acquire the entire capital of Naturgy, a strategic company for Spain closely controlled by the government and in which CriteriaCaixa is involved. holding company The company led by Isidro Fainé decided to rearrange the parts of the painting.

Naturgy has four large shareholders, one with an industrial career—CriteriaCaixa (26.7%)—and three large funds—CVC (20.7%), GIP (20.6%), and IFM (15%)—. Each one with his own interests, strategy and evaluation. Two of the major companies, CVC and GIP, have been looking for an exit door for some time; The other big company, IFM, which came after a takeover bid three years ago, wants to control more, double its weight on the board – from one to two – and limit the room for maneuver of CEO Francisco Reines, who has been appointed chairman of the board. Administration. 2018. The chaos that makes governance difficult and that forced CriteriaCaixa, holding company An investor in the La Caixa group, acting as a big brother.

The move is further evidence that Rennis has the full support of his largest shareholders, who have, when necessary and – recently – published explicit statements in support of him, which is unusual. That was in July 2023 and in April of this year. All in order to address the problem of corporate governance in which noise accumulates. No item missing. US financial giant BlackRock, which has stakes in Repsol, Enagas, Redia, Santander, BBVA, Sabadell and ACS, has bought GIP for $11.4 billion in a deal that will close at the end of the year and will have consequences for Naturgy, according to sources. Familiar with the situation.

The fragile balance of power agreement between shareholders, agreed two years ago, has been called into question. Australian IFM entered the company through a jerky partial takeover bid, with conditions from the government, which did not include all targets. It remained at 10.8% of the capital and caused a direct conflict with CriteriaCaixa. The facility increased its participation to make it more difficult for IFM to buy shares. Despite everything, Naturgy reorganized its board of directors at the beginning of 2022 to bring IFM with a director and give an additional seat to Criteria to have three representatives. CVC and GIP have two directors each, and there are also three independent directors and one CEO (Group Chairman, Francisco Reines).

Strategic company

Government antennas have been deployed and focused on nature 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 (Medgas) with Algeria – a 4.1% shareholding through Sonatrach – and is permanently subject to oversight. The government knows – as do managers and shareholders – that from a corporate management perspective, the solution to the business problem is still up in the air. The executive is suspicious of money and opposes the basic formula of business manuals for extracting maximum value from a company: break it up and sell it into parts. In Naturgy, the partition plan – which Vice President Teresa Ribera publicly questioned – is called the Gemini Plan. It was approved more than two years ago by the council and commission, but it is stuck. Given the state of the markets and government opposition. Jimenez thought about dividing the group into two companies: one with regulated gas and electricity assets (grid infrastructure) in Spain and the rest of the countries where the company is present and the other, with liberalized businesses (generation, both traditional, such as renewable energy, and energy marketing and services). The company's position is pragmatic: Gemini is a project with full strategic sense, but the conditions for its implementation are not met.

With the markets in a state of uncertainty due to the international situation and unstable energy prices, analysts are wondering whether Naturgy managers, with Renesse at the helm, will be able to achieve the planned plans, which focus on the energy transition and renewable energy sources, or whether they made a mistake? optimism. Bankinter's analysis, signed by Arantzatzu Bueno, places its focus there. Bueno notes “a less favorable environment for gas and electricity prices than anticipated in the plan,” which leads to “more conservative estimates.” The analysis sets the price of gas at 23 euros per megawatt, compared to 55 euros and 47 euros in the Naturgy plan for 2024 and 2025, respectively. Natural gas consumption in Spain is not doing well either. It was reduced by 11% in 2023, reaching 323,753 gigawatt-hours, according to data from the Corporation for Strategic Reserves of Petroleum Products (Cores).

Of course, uncertainties are inherent in the stock market. With the best results in history in 2023 – 1,986 million net profit, up 20% from the previous year – Naturgy lost 25% in the year – until the conversations with Taqa were published – and 17% in the last five exercises. The company is also aware that the company's price fell in the first months of the year due to its exclusion from the MSCI indices. It's a serious point. MSCI indices are prepared by MSCI (formerly Morgan Stanley Capital International) and consist of a series of reference values ​​that together reflect the development of the most important markets in the world. IFM's takeover bid and shareholding structure left the floating capital, which is the tradable capital in the market, at just 13%, which caused the MSCI indices to exodus. Many investors whose trades were indexed to these indices sold them.

Despite the hype, the company and its managers use the numbers as insulation. In 2023, Naturgy recorded the best year in its history despite low energy prices and high market volatility, with a significant increase in gross operating results (EBITDA) reaching €5,475 million (an additional 11%). It all depends on improving profit margins in electricity and gas, grid price reviews in Latin America and new capacity in renewables. The company confirms that Naturgy maintains its commitment to renewable energy sources with 6.5 GW in operation at the end of 2023 (+18%). “Looking to 2024 and 2025, they expect 1.2 GW and 2.3 GW of additional capacity to come online, respectively,” says Angel Perez, a Renta4 analyst. In general, these are good numbers that allowed the company, among other things, to cope with investments – 3.000 million – and profits – 1.634 million – without breaking a sweat.

But companies don't live in the past. This year will be difficult. Naturgy is not currently setting its 2024 results targets due to extreme volatility in energy markets and also due to unpredictable weather. Analysis by Bueno (Bankinter) shows how the analytics consensus forecasts a possible decline in the total EBITDA result by up to 11%, which would put it at 4,888 million. In any case, CriteriaCaixa's move leaves out of place, and outdated, some of the internal pressure methods used by the funds, such as electing a CEO to “accompany” Reines — they are not on the table at the moment, they say. The sources I looked at – or the CEO salary review – are 5.86 million in 2022 and 5.47 million in 2023. The meeting held last April approved the salaries of the company’s directors with 76% of the votes. He follows.

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