Funds advised by Elliott Advisors (UK) Limited (together, Elliott) have requested the addition of an agenda item to the upcoming Annual General Meeting (AGM) of EDP “ Energias de Portugal, S.A. (EDP or the Company) “ providing shareholders with a vote on one of the key conditions precedent for the takeover bid submitted by China Three Gorges Europe S.A. (CTG) in May 2018 (the Bid). Elliott believes the proposed resolution “ a vote on the amendment of EDP bylaws to lift an existing 25% cap on voting rights “ will clarify EDPs existing situation vis- -vis the Bid, thus resolving the current impasse and affording EDP a clear pathway forward.
Since outlining its views last month on how EDP should invest in growth and optimise its portfolio to deliver superior value, Elliott has been encouraged by the constructive response received from a diverse set of stakeholders. EDPs Strategic Update presented on 12 March 2019 marked an important first step in the right direction, and while Elliott remains encouraged by this progress, a stronger and accelerated portfolio optimisation plan is ultimately needed to drive sustained value creation and superior growth.
To pursue a more ambitious strategy and plan for the future, EDP needs to overcome the significant uncertainty created by CTGs takeover bid. Today, there exists a clear consensus among stakeholders: CTGs Bid in its current form is not in the best interests of EDP. The offer price falls far short of what would be required to garner shareholder support.
In its own detailed assessment of the Bid published on 8 June 2018, EDPs Executive Board of Directors itself concluded, The price offered does not adequately reflect the value of EDP and the implied offer premium is low considering what is customary for European utilities where the offerors have acquired control. Beyond its failure to reflect fair value, Elliott believes the Bid would also significantly weaken EDP, leaving the Company with a less attractive asset mix and fewer growth opportunities.
On a more practical level, Elliott is not aware of any significant progress on the numerous conditions precedent required for the transaction to proceed, including approval from major anti-trust, foreign investment, energy and other regulatory bodies around the world. Not only have major regulatory bodies not approved the transaction, but CTG has yet to file the necessary applications in most major jurisdictions.
Among other key requirements for the Bid, shareholders must amend EDPs bylaws and lift an existing 25% cap on voting rights. Common in Portugal, the voting cap aims to protect against a large shareholder exerting undue power over a company without paying a premium to shareholders for this effective control. In the case of EDP, lifting the cap would signal support for a takeover by the largest shareholder without a proper premium. If shareholders reject the lifting of the voting cap, the Bid would not meet a required condition precedent. Unless that condition is then immediately waived by CTG, Elliott believes there would be sufficient cause for the Portuguese authorities to terminate the Bid.
In its request submitted to the Vice-Chairman of EDPs Board of the General Shareholders Meeting on 27 March 2019, Elliott has therefore proposed an agenda item for the 24 April 2019 AGM, in which shareholders will be able to vote on whether EDP should lift the 25% cap on voting rights of any shareholder, subject to the successful completion of the CTGs Bid. In calling for this vote, Elliott is making clear that it intends to vote against the resolution and recommends all fellow shareholders do the same. Should the resolution fail to receive a supermajority of two thirds of shareholders present at the 24 April 2019 AGM, the voting cap will remain in effect. Such a result should not only allow for a prompt termination of the Bid in its current form, but will also provide the Company with the necessary clarity to plan for the future.
Since its offer more than ten months ago, CTGs stalled Bid has had the practical effect of hindering EDPs progress on multiple fronts. Elliotts proposed resolution provides an opportunity for all shareholders “ including CTG “ to help resolve the current impasse. A vote would empower EDP shareholders to end the uncertainty caused by CTGs Bid, which in turn would allow EDPs leadership to pursue a more ambitious strategy of portfolio optimisation and investment.
Elliott continues to fully respect CTGs position as EDPs largest shareholder, and in any scenario going forward, Elliott recognizes that CTG will have an important role to play in charting EDPs future. Elliott remains committed to constructive engagement with EDPs General and Supervisory Board, EDPs Executive Board of Directors, and its fellow shareholders “ including CTG “ to advance long overdue reforms that can help secure a brighter future for EDP.
For additional resources related to EDPs unique value-creation opportunity, Elliott encourages interested parties to visit www.Empower-EDP.com.
Elliott Management Corporation manages two multi-strategy funds which combined have approximately $34 billion of assets under management. Its flagship fund, Elliott Associates, L.P., was founded in 1977, making it one of the oldest funds of its kind under continuous management. The Elliott funds investors include pension plans, sovereign wealth funds, endowments, foundations, funds-of-funds, and employees of the firm. Elliott Advisors (UK) Limited is an affiliate of Elliott Management Corporation.
Elliott Advisors (UK) Limited
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