The minority shareholders of Cesp, a São Paulo-based power generating company, managed to improve the conditions of the deal that will merge assets of Votorantim and the Canadian pension fund CPPIB.
Led by Felipe Dutra, from the activist management firm Squadra, the independent committee set by Cesp to negotiate the deal recommended to the board of directors that the power generation utility be valued at R$9.1 billion in the exchange ratio, the equivalent of R$27.93 per unit.
The committee’s recommendation was accepted by Cesp’s board, which approved it on Friday and has just released a notice of material fact about the transaction. With the change, Cesp’s minority shareholders will hold 30.63% of the company resulting from the union of assets. In the original proposal, they would keep 29.9%.
The new evaluation of Cesp implies a 5.9% improvement in comparison to the suggestion made at the end of October by the controlling shareholders. At the time, the power utility was evaluated at R$26.76, with an equity value of R$8.6 billion.=
“According to the math we did last week, considering the internal rate of return to 8%, GSF [Generation Shift Factor], long-term price and reference date [end of 2021], Cesp would be valued at just R$28, which suggests a fair exchange ratio,” said Antonio Junqueira, with Citi, in a preliminary comment sent to asset managers. The analyst also praised the independent committee’s work. “Very good work by the committee. They respected the minority shareholders and really aligned all the variables.”
After the approval of the exchange ratio, Cesp must now call a general meeting of shareholders to consider the matter. As Votorantim and the Canadian pension fund will be able to vote, the deal is virtually approved. The merger is expected to be completed by February.
The creation of the new company, a renewable power giant that will be listed on the exchange B3, is advanced. The first stage has already been concluded, with the union of the electricity assets of VTRM (a joint venture with the Canadians that had control of Cesp and wind power assets) and Votorantim Energia.
In the first stage of the deal, the Canadian pension fund injected R$1.5 billion into VTRM. Votorantim offered the assets of Votorantim Energia, which were valued at R$2.8 billion. Now, the Cesp-VTRM, which will create the new company with a name still undisclosed, remains to be done.
The independent committee also increased the valuation of the assets of Votorantim Energia, to R$2.8 billion from R$ 2.5 billion. With the changes, the power company is born valued at almost R$17.9 billion. The amount considers Cesp’s equity (R$9.1 billion), Votorantim Energia’s assets (R$2.8 billion), those of VTRM (R$4.5 billion) and the Canadian fund’s injection (R$1.5 billion).
Votorantim will hold 37.74% of the new business, while CPPIB will keep 31.94%. The remainder will remain with Cesp’s current minority shareholders, which includes asset management firms such as Squadra (owner of 19.4% of the preferred shares and 12.3% of the total capital) and Truxt.
Source: Valor international