Session V OECD: 14 th Session Advisory Group on Privatisation Managing Commercial Assets under State...
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Transcript of Session V OECD: 14 th Session Advisory Group on Privatisation Managing Commercial Assets under State...
Session Session VV
OECD: 14th 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
SummarySummary
Government’s new role in the market has made the underlying tensions among possibly conflicting roles and objectives more acute
Multiple roles:Multiple roles: Regulator (public)Regulator (public) Set economic policy (public)Set economic policy (public) Share holder (private)Share holder (private) Granting licences (public)Granting licences (public) Client Publ. ProcurementClient Publ. Procurement
(public/private) (public/private)
Multiple objectives:Multiple objectives: Reducing public debt ,deficit and Reducing public debt ,deficit and
Pusuing “national interest”(public)Pusuing “national interest”(public) Liberalisation & fostering competition Liberalisation & fostering competition
(public)(public) Reduce State’s role in economy (public)Reduce State’s role in economy (public) Max value of assets (private)Max value of assets (private) Sell at best conditions (priv)Sell at best conditions (priv) Improve efficency and transparency of Improve efficency and transparency of
financial mkts (priv)financial mkts (priv) Facilitate change in control and protect Facilitate change in control and protect
minority share holders (public)minority share holders (public)
ActionsActions Possible solutions to conflicting roles:separate as early as possible, Possible solutions to conflicting roles:separate as early as possible,
roles and agenciesroles and agencies responsible for them:responsible for them: 1 Regulator Independent Authority 1 Regulator Independent Authority
2 Set economic policy Line Ministry2 Set economic policy Line Ministry
3 Shareholder Treasury3 Shareholder Treasury
4 Granting licences Prime Ministerial committee4 Granting licences Prime Ministerial committee
5 Client Transparent public procurement5 Client Transparent public procurement
6 Improve financial mkts efficency Privatise banking and Stock Exch6 Improve financial mkts efficency Privatise banking and Stock Exch
7 Transparency change in control, 7 Transparency change in control,
protecting minority shareholders New corporate governanceprotecting minority shareholders New corporate governance
Despite clear roles, conflicts are probably inevitable. (ie 6 and 7 are not due to conflicting Despite clear roles, conflicts are probably inevitable. (ie 6 and 7 are not due to conflicting objectives , but from vested interest groups)objectives , but from vested interest groups)
Usual clash refers to: 4 and 5 vs 2 and 1Usual clash refers to: 4 and 5 vs 2 and 1
1 vs 31 vs 3
Corporate Governance and TransparencyCorporate Governance and Transparency
Insider trading
Takeover rules
Retail investment
Minorities’ rights
Change of corporate control
Privatisation rules and procedures
Listing requirements
Corporate Governance MechanismsCorporate Governance MechanismsShareholding
Limits
Voting List
System
Proxy
Voting
CREDITCREDIT
BCIBCI
IMIIMI
INAINA
ENIENI
TELECOM IT .TELECOM IT .
AUTOSTRADEAUTOSTRADE
ENELENEL
Special
Powers
FINMECC.FINMECC.
Development of Competition for Corporate ControlDevelopment of Competition for Corporate Control
Notice by bidder/targetNotice by bidder/target
Offer documentOffer document
Passivity rulePassivity rule
Mandatory offers Mandatory offers
Competing offersCompeting offers
Shareholders AgreementsShareholders Agreements
TENDER OFFER RULESTENDER OFFER RULES
Evolving Ownership Structure for Privatised CompaniesEvolving Ownership Structure for Privatised CompaniesTO DATE (*)FOLLOWING PRIVATISATION (*)
100% Free FloatUNICREDITO37% Banking foundations3% Allianz60% Free float
14.5% Core Shareholders85.5% Free Float
IMI
41% Compagnia di San Paolo and other core shareholders59% Free float
18% Core Shareholders82% Free FloatINA
85% Generali9% San Paolo6% Free float
100% Free FloatBANCA COMMERCIALE ITALIANA
70% Intesa30% Free float
61% Controlling Shareholders39% Free FloatSEAT PAGINE GIALLE
64% Telecom Italia (**)
36% Free float (**)
10.6% Core Shareholders89.4% Free FloatTELECOM ITALIA
55% Tecnost - 3.9% Treasury41.1% Free float
(*) % ownership refers to ordinary share capital; (**) Pro-forma merger with tin.it
Selected Case StudiesSelected 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 ProcessPrivatisation Process and Following Events 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 TI’s Privatisation: Facts and Figures
PRIVATISATION METHODOLOGYPRIVATISATION METHODOLOGY PRIVATISATION METHODOLOGYPRIVATISATION METHODOLOGY Public offering + private placement with Public offering + private placement with
core shareholderscore shareholders
Public offering + private placement with Public offering + private placement with core shareholderscore shareholders
PUBLIC OFFERING (EURO 9.6 BN)PUBLIC OFFERING (EURO 9.6 BN) PUBLIC OFFERING (EURO 9.6 BN)PUBLIC OFFERING (EURO 9.6 BN)
84% sold to Italian retail investors (10% 84% sold to Italian retail investors (10% to TI employees)to TI employees)
16% sold to institutional investors16% sold to institutional investors
84% sold to Italian retail investors (10% 84% sold to Italian retail investors (10% to TI employees)to TI employees)
16% sold to institutional investors16% sold to institutional investors
PRIVATE PLACEMENTPRIVATE PLACEMENT (EURO 2.2 BN) (EURO 2.2 BN)
PRIVATE PLACEMENTPRIVATE PLACEMENT (EURO 2.2 BN) (EURO 2.2 BN)
10% TI’s ordinary share capital sold to 10% TI’s ordinary share capital sold to core shareholderscore shareholders
No formal concert among core No formal concert among core shareholdersshareholders
Lock-up provisionsLock-up provisions
10% TI’s ordinary share capital sold to 10% TI’s ordinary share capital sold to core shareholderscore shareholders
No formal concert among core No formal concert among core shareholdersshareholders
Lock-up provisionsLock-up provisions
CORPORATE GOVERNANCECORPORATE GOVERNANCE CORPORATE GOVERNANCECORPORATE GOVERNANCE
Special powers granted to Italian Special powers granted to Italian TreasuryTreasury
3% shareholding limit for 3 years3% shareholding limit for 3 years Voting list systemVoting list system
Special powers granted to Italian Special powers granted to Italian TreasuryTreasury
3% shareholding limit for 3 years3% shareholding limit for 3 years Voting list systemVoting list system
Olivetti’s Tender Offer on TIOlivetti’s Tender Offer on TI
FEBRUARYFEBRUARY FEBRUARYFEBRUARY Olivetti announces its intent to launch a tender offer for 100% of TI’s
ordinary share capital at 10 per share, valuing TI at 52.6 bn
Olivetti announces its intent to launch a tender offer for 100% of TI’s ordinary share capital at 10 per share, valuing TI at 52.6 bn
MARCHMARCH MARCHMARCH
TI responds with its defence plan (financing package + cash tender on TIM minorities shares)
Olivetti raises its bid to 11.5 per ordinary share
TI responds with its defence plan (financing package + cash tender on TIM minorities shares)
Olivetti raises its bid to 11.5 per ordinary share
APRILAPRIL APRILAPRIL
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 76 bn “merger of equals”
Olivetti’s tender offer is officially launched with the offer period to last 17 working days
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 76 bn “merger of equals”
Olivetti’s tender offer is officially launched with the offer period to last 17 working days
MAYMAY MAYMAY
TI announces that, in case Olivetti’s tender offer is unsuccessful, it would implement the buy-back program on ordinary shares at 9.5 per share
Olivetti’s tender offer closes with Olivetti reaching a 52.1% acceptance level
TI announces that, in case Olivetti’s tender offer is unsuccessful, it would implement the buy-back program on ordinary shares at 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 TreasuryOlivetti’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 ProcessPrivatisation 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)
Restructuring of Energy and
Transportation
Merger with MEI
23% stake in STM
Euro 1.1 bn cash
Privatisation
FinmeccanicaFinmeccanica’s Strategic Alliances’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 VenturesFinmeccanica’s International Joint Ventures
BUSINESS SECTORBUSINESS SECTOR COMPANYCOMPANY PARTNERPARTNER EQUITY INTERESTEQUITY INTEREST
DEFENCEDEFENCE AMSAMS BAE SystemsBAE Systems 50%50%
HELICOPTERSHELICOPTERS Agusta-WestlandAgusta-Westland GKNGKN 50%50%
MISSILESMISSILES MBDMBD BAE Systems/EADSBAE Systems/EADS 25%25%
AERONAUTICSAERONAUTICS EMACEMAC EADSEADS 50%50%
SPACESPACE AstriumAstrium EADSEADS PendingPending
Finmeccanica’s Privatisation: Facts and Figures Finmeccanica’s Privatisation: Facts and Figures
PRIVATISATION METHODOLOGYPRIVATISATION METHODOLOGY PRIVATISATION METHODOLOGYPRIVATISATION METHODOLOGY
Public offering on Italian and Public offering on Italian and international markets (Euro 5.7 bn)international markets (Euro 5.7 bn)
Concurrent convertible offering (Euro Concurrent convertible offering (Euro 0.8 bn) launched by Finmeccanica0.8 bn) launched by Finmeccanica
Public offering on Italian and Public offering on Italian and international markets (Euro 5.7 bn)international markets (Euro 5.7 bn)
Concurrent convertible offering (Euro Concurrent convertible offering (Euro 0.8 bn) launched by Finmeccanica0.8 bn) launched by Finmeccanica
INSTITUTIONAL OFFERINGINSTITUTIONAL OFFERING INSTITUTIONAL OFFERINGINSTITUTIONAL OFFERING
2.0x oversubscribed2.0x oversubscribed
26.3% to US investors26.3% to US investors
29.3% to Italian investors29.3% to Italian investors
44.4% to RoW investors44.4% to RoW investors
2.0x oversubscribed2.0x oversubscribed
26.3% to US investors26.3% to US investors
29.3% to Italian investors29.3% to Italian investors
44.4% to RoW investors44.4% to RoW investors
RETAIL OFFERINGRETAIL OFFERING RETAIL OFFERINGRETAIL OFFERING
1.9x oversubscribed1.9x oversubscribed
1.2 million requests1.2 million requests
76% of total offer allocated to retail76% of total offer allocated to retail
1.9x oversubscribed1.9x oversubscribed
1.2 million requests1.2 million requests
76% of total offer allocated to retail76% of total offer allocated to retail
Corporate Governance post PrivatisationCorporate 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 POWERSSPECIAL POWERS SPECIAL POWERSSPECIAL POWERS
Approval of material acquisitions of shares (3%)Approval of material acquisitions of shares (3%) Approval of material shareholders’ agreement (relating to 3% Approval of material shareholders’ agreement (relating to 3%
or more of Finmeccanica’ share capital)or more of Finmeccanica’ share capital) Appointment of members of the Board of Directors and Appointment of members of the Board of Directors and
Statutory AuditorsStatutory Auditors Veto powers (dissolution, transfer of business, mergers)Veto powers (dissolution, transfer of business, mergers)
Approval of material acquisitions of shares (3%)Approval of material acquisitions of shares (3%) Approval of material shareholders’ agreement (relating to 3% Approval of material shareholders’ agreement (relating to 3%
or more of Finmeccanica’ share capital)or more of Finmeccanica’ share capital) Appointment of members of the Board of Directors and Appointment of members of the Board of Directors and
Statutory AuditorsStatutory Auditors Veto powers (dissolution, transfer of business, mergers)Veto powers (dissolution, transfer of business, mergers)
SHAREHOLDING SHAREHOLDING LIMITLIMIT SHAREHOLDING SHAREHOLDING LIMITLIMIT
No more than 3% of the company held by any natural and No more than 3% of the company held by any natural and legal person for a period of 3 yearslegal person for a period of 3 years
Limit can be exceeded if a tender offer is launched on 100% of Limit can be exceeded if a tender offer is launched on 100% of the company’ share capital (Law 474)the company’ share capital (Law 474)
No more than 3% of the company held by any natural and No more than 3% of the company held by any natural and legal person for a period of 3 yearslegal person for a period of 3 years
Limit can be exceeded if a tender offer is launched on 100% of Limit can be exceeded if a tender offer is launched on 100% of the company’ share capital (Law 474)the company’ share capital (Law 474)
Privatisation ProcessPrivatisation Process
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
1995 1997 1999 - 2000
PrivatisationPrivatisation Objectives and Options 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
PrivatisationPrivatisation Issues Issues
Put in place a “real” privatisation
Conflicts of interest
Maximise proceeds
Support from Local Authorities
Stakeholders’ interests
Minority shareholders
ISSUEISSUE ACTIONACTION
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
PrivatisationPrivatisation Results 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