Buy REN 17% above the market? Government justifies premium

Nthe briefing of the Council of Ministers, the Minister of the Presidency, António Leitão Amaro, explained that the acquisition of relevant holdings in listed companies is usually made through bilateral negotiations, based on a historical average of the quotation and a premium associated with the influence that participation confers.

The Minister was asked about the value of the operation, in particular on the indication that the agreed price would be 17% above market value in the light of the announcement of EUR 380 million, as reported in the Economic Journal.

Leitão Amaro referred the details to the Ministry of Finance, stressing that the case is still pending evaluation by the Court of Auditors, but explained that the acquisition of relevant holdings in listed companies is usually made on the basis of a historical value of the quotation, to which a premium is added.

“ Typically, an X prize that is then agreed between the parties is made by the listing history.”, he said.

The minister added that the prize is justified, among other factors, by the weight of the acquired participation. The position of 13.7% that the State intends to buy from Pontegadea, the Ortega family, owner of Zara, will be the second largest of REN, behind the 25% held by the Chinese State Grid.

“ That participation, which is the second largest and is half of the largest participation in the company, has in fact an inherent power”, he said, arguing that this value should be considered beyond the market price.

The minister also justified the option of a negotiated acquisition rather than a gradual purchase on a stock exchange, recalling that REN has few shares traded daily and limited liquidity.

“ In a relatively small market with limited liquidity such as REN, the time it would take to acquire such a stake would have two consequences,” he said.

It explained that it would take longer to achieve the desired participation, delaying the strategic objectives of the operation, and the execution of a large number of purchase orders could lead to an increase in price.

Asked about the concrete objective of the State's entry into the capital of REN, Leitão Amaro stated that the question is not whether there should be a state shareholder in the company, since the national electricity network already has a public shareholder, although foreign, referring to the Chinese State Grid.

“What is in question is whether, besides this, there will also be a second that already belongs to the country, the Portuguese State”, he said.

The minister argued that the presence of the State in REN responds to reasons of “sovereignty and energy security” and recalled that the Prime Minister, Luís Montenegro, had already admitted this possibility before taking office.

“ In no country in Europe [the State] is outside the power grid. These are reasons for energy sovereignty and security,” he said.

Leitão Amaro pointed out, however, that the shareholder function does not replace the other public functions in the energy sector, but complements them, referring to the position of the State as a network granter and the regulatory function exercised by an independent regulator (ERSE).

The minister also framed the entry of the State into REN in the challenge of increasing the electrification of the country and investment in the production, distribution and transport of electricity.

According to Leitão Amaro, the effort to increase the supply, distribution and transport of electricity should be carried out with a sustainability perspective and without aggravating costs for consumers.

The minister also stated that the operation to reach agreement for the entry into REN capital was only possible with the current characteristics and relevance because it was conducted “with discretion, but never with opacity”.

As for more details about the business, he always referred to Finance: “The purchase process is pending evaluation by the Court of Auditors. Their final terms depend on it,” he said, adding that the explanations will be given “at the proper moment”, when the process is completed.

Parpública acquired 13.7% of REN from Pontegadea, investment firm of the Ortega family, owner of Zara, in a business that represents the return of the Portuguese State to the capital of the company since the departure of the last state participation in 2014.