It opens a new era at Naturgy and aims to resolve some of the internal governance problems that had slowed down the gas company’s progress in recent years. Until now, the three directors appointed by this fund, along with three others from CVC, made up one third of the decision-making body, which according to the statutes allowed them to block certain decisions. If one of the three GIP directors loses with this transaction, the veto power could disappear.
Naturgy’s board of directors is made up of 15 members. GIP has appointed three, the same as CVC, which has 18% of the capital. Above, Criteria (as the first shareholder, with 23.9%) has three others – in addition to a link with the executive president, Francisco Reynés, who is vice president of Criteria – and the Australian fund IFM (which holds 15%) has two more. The other three members are independent directors.
This distribution of power was agreed at the beginning of the year, when IFM, due to the market purchases it had made in recent times, demanded a second director. At that time, CVC and GIP also got their third seat. The statutes establish that certain decisions – such as asset sales, acquisitions, modifications in the dividend policy or investments greater than an established amount – require approval by a majority of more than two-thirds of the board, that is, 11 members. Seen another way, the sum of six councilors has the capacity to block each of these measures. What’s more, with five it is still possible.
Naturgy has suffered in recent years from a capital with shareholders with different interests. While CVC and GIP have been thinking mainly about their capital exit for some time, Criteria – whose fundamental objective is to pay dividends for the social work of its sole shareholder, the La Caixa Foundation – and IFM have a more long-term vision. This had complicated decision-making at the gas company on several occasions.
Selling a portion of GIP shares may resolve this. Sources close to the fund assume that, with the transaction, the firm will end up losing one of its three directors. Not in vain, it went from 20% of the capital it had when it reached the third representative to 18% after the self-takeover that Naturgy carried out this past spring. And now it will remain at the 11% that it will hold after this week’s placement, a percentage lower than that of IFM, which has two directors.
From here, several options are open to Naturgy. The first, and the one that would probably make the most sense from a corporate governance point of view, would be to replace a proprietary director with an independent one. Not in vain, both the takeover bid and the sale this week have increased the floating capital of the value.
The gas company could also replace the independent with an executive and appoint a CEO to work in tandem with Reynés. This is an old claim of the funds, which unsuccessfully tried to appoint Ignacio Gutiérrez-Orrantia, an investment banker at Citi, to that position. This alternative has been raised again since Reynés assumed his new position at Criteria.
In either of these two options, the sum between CVC and GIP would remain at five councilors, at the limit – but sufficient – of what would allow them to block the council. A situation that would be repeated at the shareholders meeting, since the three funds will no longer have half of the capital. The third alternative would be to amortize that position and have the council become made up of 14 members. This would maintain the current balances of power and CVC and GIP would retain veto power by maintaining 5 councilors out of 14.
A hit to the funds
However, there is still another possibility that would drastically limit the power of the CVC funds – which is invested with Corporación Financiera Alba – and GIP (owned by BlackRock), if there are no further changes in capital. In the last reorganization of the board, a sixteenth appointment was vacant, which due to capital arithmetic corresponded to Criteria, but Reynés’s connection to the Catalan holding company led to that void. If you take advantage of the corporate reorganization to raise the board to 16 members, GIP and CVC would fall below two-thirds and lose their veto power.
Be that as it may, the transfer of the new capital to the leadership will take weeks or possibly months, until the general meeting of shareholders arrives. This Tuesday’s council is of an ordinary nature and does not include this issue on the agenda. The normal thing is that the company addresses it in view of its meeting, which is usually held in March or April, so the issue must be addressed up to a maximum of one month before that date, in the corresponding board of directors.
With this panorama, various scenarios open up and the potential relationships between the different shareholders become important. Before launching the accelerated placement of that 7.1% of the capital, BlackRock communicated its decision. And the recomposition of the board of directors is the power of Naturgy, which will have to tread carefully to determine the balance of power. For now, BlackRock intends to continue being a reference shareholder with a presence on the board of the listed company.
But if the recomposition of the leadership leaves CVC and BlackRock without the ability to veto the most important decisions, the rest of the shareholders and himself management You will be able to take certain actions without so much influence from the funds, whose objective in recent years has been, above all, to make your investment profitable. Naturgy has encountered complicated situations in the past from the point of view of conflicts of interest in potential purchases. That is, in buying and selling opportunities you can meet your partners within the board in competing consortia. A problem that, if the veto power of these investors is limited, would give more capacity to the company’s management.
Another key is the repositioning that this scenario would give to IFM. Despite having a long-term investment vocation, similar to that of Criteria Caixa, and different from CVC or GIP, the relations between the Australian fund and the Catalan holding company have been controversial since they launched a takeover bid in 2021. The wounds have subsequently been healed, but to this day they have not yet completely healed. In this context, a possible disparity of opinions between the funds and the rest of the directors could put IFM in an arbitration position that would give it more power. And this, while various sources indicate that the oceanic investor could continue buying shares and strengthening the company’s capital.
Limiting power could also encourage other shareholders, such as CVC, to make decisions, given that it could lose strength on the board. And everything must be articulated without forgetting that the regulator continues to weigh. The funds have limitations imposed by the Government and that aspect cannot be neglected. Reynés is executive president and chief executive of Criteria Caixa, Naturgy’s largest shareholder. For now, the National Securities Market Commission (CNMV) has not raised any objections to this issue nor has it indicated that this could affect the governance of the company.
