Failed Negotiations Between Taqa and Criteria Result in End of Talks on Naturgy Deal

The delayed announcement of a takeover bid for 100% of Naturgy by Taqa, in partnership with the main shareholder of the Spanish energy company, CriteriaCaixa, has ended in a resounding failure. According to a relevant fact published on Monday by the National Securities Market Commission (CNMV), Criteria has reported that negotiations with Taqa «have been terminated without reaching any agreement» on the deal that was announced on April 17 regarding «a possible cooperation agreement related to Naturgy». Market sources had already considered the talks to be broken since early afternoon, after more than two months of discussions to launch a bid for Naturgy.

In a brief statement, Criteria reiterated «its commitment as a long-term investor to Naturgy’s industrial project» and its «explicit support for the transformation plan in which the company is immersed». Referring to a press release published on April 2, it stated that «it is normally in discussions to explore possible partners that could allow Naturgy to deepen its transformation and accelerate its energy transition».

The negotiations became public in mid-April when Taqa, a virtually unknown group from Abu Dhabi in Spain, acknowledged that it was in talks with Naturgy’s two largest shareholder funds, GIP and CVC, to buy their stakes of just over 20% each, which would result in a total bid exceeding the 30% limit. At the same time, Criteria admitted to negotiating with the Emirati group to reach a shareholder agreement that would allow it to maintain joint control of the gas company with the Arab group. The Government was informed of the operation and initially viewed it favorably.

Various sources claim that «unsolvable» differences over the company’s price have led to the final breakdown between the buyer and the sellers, especially CVC (less so GIP), who «pushed the envelope too far in a dangerous bargaining with the Emirati group», ultimately leading to the end of negotiations last weekend. The same sources state that CVC insisted on a price of 27 euros per share, which was deemed an «unsustainable» valuation for the buyer.

The situation had stalled about 15 days ago in how to structure the future agreement. Lawyers for both parties had been studying for weeks the creation of a joint instrumental company, a vehicle that would be responsible for launching the bid for Naturgy and regulating the control conditions of both partners over the energy company presided over by Francisco Reynés. The project had hit a roadblock due to various difficulties such as tax issues and the location of the headquarters. The initial problem was who would have the majority of this vehicle, aside from the shares of Naturgy received from each partner, and how the management and power would be distributed.

It was planned that Taqa and Criteria would contribute their shares in Naturgy to the instrumental company: those already owned by the Catalan holding company, and those that could be acquired up to the decided percentage. The goal was to maintain shareholding balance. It would also determine the representation of each partner, both in this instrumental company and in Naturgy itself, and could be responsible for financing the operation. It was a similar company to the one created by Enel and Acciona to bid for 100% of Endesa. In the end, the Spanish construction company left the capital (holding only a minority of 10%) and the Italian company took full control.

However, the parties managed to overcome their differences and decided to proceed with the operation despite not having a common vehicle. The issue of the price remained unresolved.

None of this has come to fruition. Political sources claim that part of the breakdown is attributed internally to the CEOs of both companies, Ángel Simón and Jasim Husain Thabet, for the slow pace of the negotiations, which collapsed over the weekend. It is worth noting that amidst the process, the president of Naturgy unconditionally waived his bonus linked to the company’s share price to facilitate the purchase, which he will not regain.

A great opportunity has been missed with the failed negotiations to exit the capital for Naturgy’s major shareholders, the funds GIP and CVC, with just over 20% of the capital each, and with an investment cycle that expired several years ago, providing a lifeline especially for CVC rather than the American GIP, which is currently in the process of being absorbed by the world’s largest fund manager, BlackRock.

Taqa’s operation, which was supposed to accept an alliance to jointly control the Spanish company with its main and historic partner, Criteria, with a 26.7% stake, seemed the most appropriate after the failed plan to split the company into two (if the share value did not suffice, the plan B was to sell assets) separating the regulated business from the liberalized one. A frustrated project, both due to the energy crisis and the Government’s reluctance to such separation of the so-called Project Gemini.

One of the main advantages of Taqa’s pending bid was the government’s involvement, which, among the options considered by the shareholders (Russian and Arabian investors, among others), the Mirati seemed like a suitable alternative. Especially if Criteria shared control of Naturgy.