CEO of Enel Chile addresses and defends the operation. As of now, the investors’ meetings to sanction it are still scheduled for Friday.
Enel Chile was placed in a difficult position before the extraordinary shareholders’ meetings that must pronounce this Friday on the merger between Enel Generación Chile and its subsidiary, Eléctrica Pehuenche.
Last week, the 10th Civil Court of Santiago, in the framework of a dispute filed in 2020 on another matter, admitted a precautionary that jeopardizes all of this.
The story points to a claim filed by the company Tricahue, owner of 2.91% of Pehuenche - which is 92.65% controlled by Enel Generación Chile,- based on a corporate reorganization promoted in 2017 in the so-called Elqui Plan, where these minority shareholders allege damages and ask for a payment similar to the “award” received by the former Endesa shareholders during the process.
The court issued an order prohibiting Enel Chile from entering into any acts or contracts with respect to the shares it holds in Enel Generación Chile, equivalent to 93.55% of the company.
Paolo Pallotti, CEO of the parent company, addresses the situation where, he says, they will take every action they can so that the shareholders’ assembly can be held as normal.
“There is legal activity in process. We are taking all possible actions to avoid harming all minority shareholders of Pehuenche and Enel Generación, and to carry through with the operation,” he says.
In his opinion, the Tricahue case related to the Elqui Plan and this merger operation should go in parallel, since they are unrelated. “This is a very simple operation, a merger between a parent company and its controlled company, which benefits both parties. First, for the Pehuenche shareholders, because it is a firm with three hydropower plants, it is exposed to a high risk in terms of water supply, and from a stock market perspective, it has low liquidity. So, with this, the investors are going to gain greater liquidity and will be part of a company that is diversified in terms of technology and geography, and has a great opportunity for commercial development,” he states. And he adds that, “we are fighting against this decision to block the operation.”
- Why is the merger being performed now and not when the Elqui Plan was carried out, which would have added the Enel Green Power assets under the umbrella of Enel Chile?
- You have to look at the timeline. The Elqui Plan was managed by Enel Chile, and its goal was for a Chilean company to manage all lines of business. That was completed successfully, and now there is a company listed on the New York and Santiago Stock Exchanges, which is the head of diversification of highly important businesses, from generation to end customer service. That was the goal.
Enel Generación has its own path of corporate simplification. This is a very simple operation; it's not one that is going to change or transform the perimeter of Enel Chile, but just that of Enel Generación, to improve management.
- If Pehuenche is a smaller company, has no debt, and delivers dividends, why would it be beneficial to minority shareholders to join a company that, while more diversified, has to take on debt and the costs of decarbonization?
- If you look at it from the side of the Pehuenche shareholder, they generate income from three hydropower plants, with the risk that such a business implies and, additionally, the issue of future development, because the company has no further possibilities for growth. If it becomes a part of Enel Generación, while it will have more debt -though still low for this type of company-, it will have a much greater capacity to create future value, since this operation will allow for significant commercial growth.
So, I see huge value for the business in terms of future growth, and each individual investor will have more options, because once incorporated within Enel Generación, they can decide to make liquidity, to leave and enter other businesses, to move with much more options. Today, those investors in Pehuenche, stay in Pehuenche.
- But when you talk about future growth, that’s because of renewable energies and what you have concentrated in EGP. How real are these options in Enel Generación?
- If you look a little further, there is really strong value in contact with customers. There is significant growth in the free market, which is active and dynamic, so you have the position to lead a transition in the use of electrical energies. That's why there’s opportunity.
- Why is there a problem again with the minority shareholders?
- The operation is organized around all corporate governance measures required, all transparency rules, with banks and independent evaluators, public reports, evaluation by the boards of directors, pronouncement of the shareholders’ assemblies. It’s also a fairly simple operation, where 14,000 investors are called to present their position on the proposal, but the 2.9% held by Pehuenche is halting an operation that deserves to be discussed by the investors in assembly, all because of litigation with Enel Chile regarding an operation that has nothing to do with this one. That is the issue.
It's not right for the economic interests of a minority shareholder to try to impede an operation that is beneficial for everyone. This is clearly a distortion in a context where we need transparency and clear rules.
- In the Elqui Plan lawsuit, have you tried to reach an agreement... Has it been interpreted that this operation is not to pay any future damages that are claimed, if a court rules as such?
- These are two completely different things. On the one hand, there is a request for compensation, where we can disagree and that’s what we are doing. But the other is a corporate simplification operation.
- If this precautionary measure remains, you wouldn’t be able to vote on Friday...
- In practice, this precautionary measure asks to suspend Enel Chile's voting rights in the Enel Generación shareholders’ assembly. This is currently being analyzed by the legal team, and we will see what strategy we need to take. We are studying several options on the table.
- Will the assembly be postponed?
- Naturally, from a governance perspective, there are different options. Right now, we are focused on the possibility of holding the meeting as planned, and if that's not possible, we will see what the most appropriate solution is.
- Has there been any contact with these minority shareholders to find an alternative solution?
- In these operations, there is very little to negotiate, because there is a third party that establishes the terms of exchange, which have to be the same for everyone, without distinction.
- And in the lawsuit itself, is there no possibility of settlement?
- In a process like this one, there are other forms of discussion, but everything is based on the requests of the other party and the motives behind them. If you don’t agree with them, there is very little you can negotiate.
- It's just a few days away. Do you think you are going to reach a favorable resolution?
- We trust that things are being done according to the rules and transparently.
- Do you think the minority shareholders behind this are acting in bad faith?
- I’m not going to judge these people, but there is one particular shareholder that is going to jeopardize a merger that will benefit all shareholders. This isn’t the place, or the operation, for these types of things. It is an operation we need to move forward, because it simplifies the corporate structure, offering benefits to the investors of both the controlled company and the absorbing company.