Knight Vinke, a European activist fund best known for its campaigns against UBS and Darty, was supportive of the Uniper transaction but argues that E.ON has a bigger opportunity to deliver value for shareholders by creating a standalone regulated network business. The investor has revealed that it first approached the company with over two years ago this suggestion but that it was rebuffed.
As Eric Knight, the fund’s founder, writes in his recent 2016 wrap-up letter:
“In October 2014 we proposed that E.ON should spin off and list its regulated network assets – much as RWE has done by spinning off Innogy – thereby setting the stage for the E.ON spin-off to become one of the most attractive infrastructure investments in a market that is craving for low risk, high yielding assets. Rather than pursuing this path, E.ON’s management chose to dispose of its conventional power generation and commodity trading units by spinning off 53% of Uniper”.
“Although sub-optimal, we have supported the spin-off of Uniper in the belief that it represents a major first step towards our vision of E.ON as a pure play regulated Network Company…but we believe that E.ON could benefit from further restructuring so as to improve its credit profile, underpin its dividend and enhance its ability to invest and create jobs.”
Knight, in an interview with the Financial Times, cites the example of Finnish utility Fortum’s(FOJCF) 2015 private sale of its electricity grid business for 18 times EBITDA. If E.ON achieved this multiple for its network assets, “their prime asset is worth more than the entire group”.
The activist has experience lobbying in this industry; in 2012 it persuaded Italian energy giant Eni(E) to spin off its regulated downstream gas business Snam(SNMRF) after a three year battle.
Knight Vinke is hoping that same persistence will pay off with E.ON.
Disclosure: The author holds no position in any stock mentioned
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