Session V OECD: 14th Session Advisory Group on Privatisation Managing Commercial Assets under State Ownership Governments in the Market: Case Studies by Prof.
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Session V OECD: 14 th Session Advisory Group on Privatisation Managing Commercial Assets under State Ownership
Governments in the Market: Case Studies
by Prof. Vittorio Grilli
Director of the Italian Treasury Budapest 20 September 2000
Summary
Government’s new role in the market has made the underlying tensions among possibly conflicting roles and objectives more acute
Multiple roles:
Regulator (public) Set economic policy (public) Share holder (private) Granting licences (public) Client Publ. Procurement (public/private)
Multiple objectives:
Reducing public debt ,deficit and Pusuing “national interest”(public) Liberalisation & fostering competition (public) Reduce State’s role in economy (public) Max value of assets (private) Sell at best conditions (priv) Improve efficency and transparency of financial mkts (priv) Facilitate change in control and protect minority share holders (public)
Actions
Possible solutions to conflicting roles:separate as early as possible, roles and agencies responsible for them: 1 Regulator Independent Authority 2 Set economic policy Line Ministry 3 Shareholder Treasury 4 Granting licences Prime Ministerial committee 5 Client Transparent public procurement 6 Improve financial mkts efficency Privatise banking and Stock Exch 7 Transparency change in control, protecting minority shareholders New corporate governance Despite clear roles, conflicts are probably inevitable. (ie 6 and 7 are not due to conflicting objectives , but from vested interest groups) Usual clash refers to: 4 and 5 vs 2 and 1 1 vs 3
Corporate Governance and Transparency
Insider trading Takeover rules Retail investment Minorities’ rights Change of corporate control Privatisation rules and procedures Listing requirements
Corporate Governance Mechanisms
CREDIT BCI IMI INA ENI TELECOM IT .
Special Powers
Shareholding Limits
Voting List System
AUTOSTRADE ENEL FINMECC.
Proxy Voting
Development of Competition for Corporate Control
TENDER OFFER RULES Notice by bidder/target Offer document Passivity rule Mandatory offers Competing offers Shareholders Agreements
Evolving Ownership Structure for Privatised Companies
FOLLOWING PRIVATISATION (*) TO DATE (*) UNICREDITO IMI INA BANCA COMMERCIALE ITALIANA SEAT PAGINE GIALLE
100% Free Float 14.5% Core Shareholders 85.5% Free Float 18% Core Shareholders 82% Free Float 100% Free Float 61% Controlling Shareholders 39% Free Float 37% Banking foundations 3% Allianz 60% Free float 41% Compagnia di San Paolo and other core shareholders 59% Free float 85% Generali 9% San Paolo 6% Free float 70% Intesa 30% Free float 64% Telecom Italia 36% Free float (**) (**)
TELECOM ITALIA
10.6% Core Shareholders 89.4% Free Float (*)
% ownership refers to ordinary share capital; (**) Pro-forma merger with tin.it
55% Tecnost - 3.9% Treasury 41.1% Free float
Selected Case Studies
Privatised in November 1997 through: Public offering Private placement with core shareholders Tender offer on TI shares launched by Olivetti in Feb 1999 Privatised in June 2000 Recapitalisation in April 1998 Merger with MEI (23% of STMicroelectronics) in Dec 1999 30% held by Treasury following privatisation Privatised in July 2000 IPO in July 1997 Sold majority to trade buyer Tender offer on ADR market float to be launched in Oct 2000
Privatisation Process and Following Events
1996 1997 1998 - 2000
Spin off of mobile business (TIM) STET transferred from IRI to Italian Treasury Merger STET/TI Management change Removal of holding company discount SEAT demerger Sale of SEAT through a competitive auction TI privatisation Olivetti’s tender offer on TI shares Management change following completion of tender offer Spin off of Internet division (tin.it) Merger SEAT/tin.it
TI’s Privatisation: Facts and Figures
PRIVATISATION METHODOLOGY
PUBLIC OFFERING (EURO 9.6 BN)
PRIVATE PLACEMENT (EURO 2.2 BN)
CORPORATE GOVERNANCE
Public offering + private placement with core shareholders 84% sold to Italian retail investors (10% to TI employees) 16% sold to institutional investors 10% TI’s ordinary share capital sold to core shareholders No formal concert among core shareholders Lock-up provisions Special powers granted to Italian Treasury 3% shareholding limit for 3 years Voting list system
Olivetti’s Tender Offer on TI
FEBRUARY MARCH APRIL MAY
Olivetti announces its intent to launch a tender offer for 100% of TI’s ordinary share capital at e 10 per share, valuing TI at e 52.6 bn TI responds with its defence plan (financing package + cash tender on TIM minorities shares) Olivetti raises its bid to e 11.5 per ordinary share TI’s Extraordinary Shareholders Meeting summoned to approve the defence plan fails to reach the required 30% quorum TI and Deutsche Telekom announce that they have agreed to a e 76 bn “merger of equals”
Olivetti’s tender offer is officially launched with the offer period to last 17 working days
TI announces that, in case Olivetti’s tender offer is unsuccessful, it would implement the buy-back program on ordinary shares at e 9.5 per share
Olivetti’s tender offer closes with Olivetti reaching a 52.1% acceptance level
Olivetti’s Tender Offer on TI – Issues Faced by Treasury
Special Powers
Veto right on mergers and purchases of TI’s shares over 3%
Olivetti’s tender offer on TI Proposed merger with Deutsche Telekom (controlled by German State)
Share Ownership (3.0%)
Attendance to shareholders meeting Preserve Treasury’s economic interest
“30% rule” for bid defences Decide on acceptance to tender offer
Shareholding Limit
3% limit lapses if tender offer is launched on 100% of ordinary share capital
Applicability in case of acceptance level below 50%
Treasury adopted a neutral stance toward the tender offer, leaving to market forces the success or failure of the bid
Privatisation Process
1997 1998 - 1999 2000
Consolidated losses Euro 1.2 bn Net debt Euro 5.1 bn Very diversified business portfolio Low market share vis-à-vis sector peers Turnaround plan Recapitalisation Euro 1.0 bn Strategic alliances Corporate streamlining/ cost rationalisation Divestiture of non core assets (EBPA, ASI) Merger with MEI 23% stake in STM Euro 1.1 bn cash Privatisation Restructuring of Energy and Transportation
Finmeccanica’s Strategic Alliances
Prior to privatisation Finmeccanica formed several strategic alliances in each of its core businesses: Joint Venture partner has been selected for its specific skills in the sector Strategic equity interest supported by shareholders agreement and management deployment Key objectives of the joint ventures were: Transform Finmeccanica from a conglomerate into an industrial holding company Create new companies able to play a major role in a consolidating sector Enhance shareholders value
Finmeccanica’s International Joint Ventures
BUSINESS SECTOR DEFENCE HELICOPTERS MISSILES AERONAUTICS SPACE COMPANY PARTNER AMS Agusta-Westland MBD EMAC Astrium BAE Systems GKN BAE Systems/EADS EADS EADS EQUITY INTEREST 50% 50% 25% 50% Pending
Finmeccanica’s Privatisation: Facts and Figures
PRIVATISATION METHODOLOGY
Public offering on Italian and international markets (Euro 5.7 bn) Concurrent convertible offering (Euro 0.8 bn) launched by Finmeccanica
RETAIL OFFERING
1.9x oversubscribed 1.2 million requests 76% of total offer allocated to retail
INSTITUTIONAL OFFERING
2.0x oversubscribed 26.3% to US investors 29.3% to Italian investors 44.4% to RoW investors
Corporate Governance post Privatisation
Considering Finmeccanica’s presence in the defence sector, the Italian Government decided to keep a significant equity stake in Finmeccanica (30%) and retain a “Golden Share” Voting list system for retail and institutional investors have been introduced in the Company’s by-laws
SPECIAL POWERS
Approval of material acquisitions of shares (3%) Approval of material shareholders’ agreement (relating to 3% or more of Finmeccanica’ share capital) Appointment of members of the Board of Directors and Statutory Auditors Veto powers (dissolution, transfer of business, mergers) SHAREHOLDING LIMIT
No more than 3% of the company held by any natural and legal person for a period of 3 years Limit can be exceeded if a tender offer is launched on 100% of the company’ share capital (Law 474)
Privatisation Process
1995 1997 1999 - 2000
COFIRI and a group of financial investors acquired ADR from Alitalia Successful IPO of ADR shares, priced at the top of the announced range (Euro 5.68 per share).
Total consideration equalled approximately Euro 307 mn for 45% of ADR’s capital DPCM establishing the regulatory framework for the privatisation procedure Local Authorities exercised their option to acquire a 3% stake IRI and Consorzio Leonardo signed the contract for the sale of IRI’s 51.2% interest in ADR IRI transferred its ADR shares to Consorzio Leonardo
Privatisation Objectives and Options
The objective of the privatisation was to maximise the proceeds from the sale as well as to preserve public interests relating to the Rome airport system The alternatives considered included: Public offering Public offering with core shareholders Trade sale A trade sale procedure was identified as the best option to maximise value and allow for a stable shareholder base for ADR
Privatisation Issues
ISSUE
Put in place a “real” privatisation Conflicts of interest Maximise proceeds Support from Local Authorities Stakeholders’ interests Minority shareholders
ACTION
No more than 2% of ADR to be held by State-owned companies Airlines excluded from sale procedure Two-stage competitive auction Option to 4 Local Authorities to acquire a 3% stake in the company Detailed business plan to be presented by final bidders Mandatory public tender on market float
Privatisation Results
The divestiture method selected for the privatisation of ADR proved to be successful The auction process proved to be very competitive, for the benefit of IRI and the minority shareholders The price paid to IRI by the winning bidder (10.8 Euro per share) implied a significant premium to ADR’s pre-bid market price In compliance with the tender offer rules the price that will be paid to the minority shareholders (9.13 Euro per share) is equal to the average between the weighted average price of ADR shares over the last 12 months and the price per share paid to IRI Several contractual obligations have been undertaken by the acquiror: Launch of a tender offer on the remaining ADR share capital 5 years lock-up period for the shares acquired from IRI Maintenance of employment levels for 3 years Implementation of business plan and financial viability