CEZ must dig deep to pick up state-owned subsidiaries

“We are committed to investing in Romania, both in power production capacities and renewable energy,” Jan Veskrna, CEZ Romania's CEO, previously told Business Review. The Czech energy company has kept its word and continued to expand its operations here, despite government reluctance to privatize major power generation units. CEZ emerged as a tough investor during Electrica Oltenia's privatization process, a bid which the Czech company won in 2005. At that time, CEZ bought a 24.62 percent stake in Electrica Oltenia for about EUR 47.4 million, and increased the share capital by EUR 103.6 million, moves which allowed CEZ to acquire a 51 percent share package in the Romanian energy distribution company. The average price per share in 2005 was EUR 4.14.Four years after the Czech firm started its operations on the local energy market, CEZ finished the unbundling procedure at Electrica Oltenia – a measure imposed by the European Union. It has invested in the energy distribution unit, started a EUR 1.1 billion investment in a 600 MW wind farm and is an investor in the construction of nuclear units three and four at Cernavoda. CEZ announced in June its plan to acquire all the minority share packages in CEZ Distributie, which reported a net profit of EUR 65.5 million last year, and CEZ Vanzare, which had a net profit of EUR 838,000 in 2008, in order to take full control of these companies. It is a bold move by CEZ considering the current economic situation, and not at all an easy task as the negotiation partners are the Property Fund, which is controlled by the Finance Ministry, and the local energy company Electrica, owned by the Economy Ministry. Preliminary reports from the negotiations indicate that CEZ will pay double the money spent on the 51 percent stake it gained after the privatization. The Property Fund controls a 30 percent stake in CEZ Distributie and CEZ Vanzare. At the end of June, when CEZ notified the Property Fund that it wanted to buy the rest of the fund's shares, in accordance with the privatization contract, none of the parties thought that the negotiations would last for more than two months. CEZ's initial offer was EUR 8.98 per share, double the value at the time of privatization, but as expected this sum was just a starting point in the negotiation process. Last week, the Property Fund announced that it had reached an understanding and said that CEZ would pay about EUR 230 million for these shares, or EUR 10.7 per share. “We consider these negotiations a success for the Property Fund, as we obtained a 20 increase in the initial share price offered by CEZ. It is a success for us because after this deal, the fund will report EUR 130 million in profit or we will sell at 55 percent over the market price of these participations, as established by an external evaluator,” Cristina Stihi, communication director at the Property Fund, told BR. The fact that the fund first started negotiations with CEZ has conferred a significant advantage, allowing the Property Fund to include a very important clause in the contract. “If CEZ were to buy CEZ Vanzare or CEZ Distributie shares three months prior to the contract signing or six months after, closing the deal at a higher price than that received by the Property Fund, CEZ would also have to pay the price difference to the fund,” said Stihi. According to her, the money will be put into bank deposits or state bonds, depending on their rates of return, at least until the management contract with the new administrator comes into force.Another player at the negotiation table is Electrica. The state-owned company controls an 18.99 percent share package in CEZ Distributie and CEZ Vanzare. Elena Voinea, PR and communication department chief, said that any details of the financial understanding with CEZ would be announced after the end of negotiations. However, media reports indicate that about EUR 145 million is on the cards, which could mean EUR 10.67 per share. This could be a success for Electrica, as the company has a smaller stake than the Property Fund. Electrica's reps said “the money could go into modernizing and expanding the network.”CEZ will also have to conclude negotiations for the CEZ Servicii minority stakes. Sources close to the negotiations are talking about an additional EUR 3 million to be paid.
dana.ciuraru@business-review.ro