Tanure’s bid for 15% of the company takes market by surprise
06/19/2024
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Sabesp’s privatization offering is scheduled for August, following the “roadshow” period, which involves formal discussions with investors — Foto: Victor Moriyama/Bloomberg
Businessman Nelson Tanure has shown interest in joining the race for Sabesp’s privatization, according to information obtained by Valor. Should he decide to proceed, Mr. Tanure would vie for the role of the primary shareholder in the sanitation company alongside Aegea and Equatorial, the two other entities currently interested in the asset. The deadline to express interest in this process concluded on Monday (17).
Sources close to the matter indicate that Mr. Tanure is exploring synergies with the Metropolitan Water and Energy Company (EMAE), which he acquired earlier this year in the first privatization auction under the Tarcísio de Freitas administration. However, the sources noted that the “unusual conditions of the auction” and “strong political opposition” have posed challenges. Mr. Tanure has declined to comment on the matter.
Given the substantial financing required and the hefty sum the winner must disburse, there is behind-the-scenes speculation about the possibility of forming a consortium with BNDESPar, the Brazilian Development Bank’s (BNDES) equity arm. However, the bank has stated that it “has not entered into and is not in the process of negotiating any agreement, covenant, or partnership with third parties for participation in the public offering of Sabesp.”
In the market, expectations suggest that Mr. Tanure’s potential bid might not generate significant interest during the “bookbuilding” process, where investors’ intentions are gauged.
This situation could diminish his chances of success, as one of the criteria for selecting the primary shareholder is the demand generated during the bookbuilding. Conversely, it also raises questions: if Mr. Tanure submits the highest bid but fails to secure the deal due to low volume in the book building, this could lead to further scrutiny, according to sources.
On Tuesday (18), news of the businessman’s interest in Sabesp emerged, catching the market off guard and resulting in a 2.97% decline in Sabesp shares, which closed at R$72.11. Similarly, when Mr. Tanure’s group secured the EMAE auction, the company’s preferred shares plummeted by 28.42%.
Beyond EMAE, Mr. Tanure holds significant stakes in the power distribution company Light and oil companies Prio and Azevedo & Travassos, among others.
The São Paulo government has crafted a privatization proposal with an innovative model that incorporates a mechanism designed to deter “adventurers” from seeking to become a primary shareholder.
The offering is structured in two phases: Initially, the two potential primary shareholders proposing the highest prices for a 15% stake in the company will be selected. Subsequently, for each candidate, two bookbuildings will be organized to accommodate other investors interested in becoming minority shareholders in Sabesp.
The primary shareholder who assembles the most advantageous bookbuilding will prevail based on criteria that meld the highest weighted price with the largest volume of demand. This means that a partner may fail to secure the position, even if they offer the highest price.
When the privatization rules were unveiled, market participants highlighted the potential for regulatory scrutiny and litigation, particularly concerning the non-priority of price as the sole decisive factor. Nonetheless, the government has stood by this approach, asserting that it enhances value for the state.
Upon inquiry, the São Paulo government mentioned that the “public offering is in a quiet period,” during which “all communications will be conducted through the prospectus and notices of material fact.”
Following the expression of interest, the contenders for the primary shareholder position are required to formalize their bids. Besides Mr. Tanure, Aegea is attempting to establish a consortium with its shareholders (Equipav, GIC, and Itaúsa) and partners from other ventures (Perfin and Kinea). Equatorial is also a contender, forming a consortium with partners including Squadra funds, Opportunity, and Canada Pension Plan.
Aegea and Sabesp declined to comment. Equatorial did not respond to inquiries.
Some potential bidders are still in discussions with the São Paulo government, seeking adjustments to the terms of the privatization. A major point of contention is the “poison pill” clause, designed to protect minority shareholders against hostile takeover attempts. This provision has been unpopular among some groups, who are advocating for its removal, sources told Valor.
Under the proposed terms, the primary shareholder would hold a 15% stake in Sabesp and one-third of the board of directors seats. A cap has been set on shareholder voting rights at 30%, which is also the threshold for initiating a public offering of shares.
“Even though the primary shareholder is acquiring only 15% of the company, it is treated as if they had reached the 30% threshold right from the start due to the shareholder agreement. With large funds behind the primary shareholder, it’s impossible to monitor everything happening within these funds constantly. These are offshore funds managed by dozens of managers simultaneously,” explained a source.
This rule impacts financial groups that might join the consortium of the primary shareholder while also managing various other stock funds that do not hold a stake in Sabesp’s controlling group. The “poison pill” clause is seen as a potential hurdle for these funds to invest in Sabesp. Any decision by a fund manager, anywhere in the world, to purchase even a single Sabesp share could activate the control mechanism due to the governance structure of the funds not covering such granularity.
Sabesp’s privatization offering is scheduled for August, following the “roadshow” period, which involves formal discussions with investors. This timing is intended to avoid interference from the election season on the operation.
*Por Fernanda Guimarães, Taís Hirata, Fábio Couto, Robson Rodrigues — São Paulo and Rio de Janeiro
Source: Valor International