Int’l Power non-execs have some leverage over GDF

April 2, 2012

By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The stock market has already done half the job for International Power’s independent directors. Two months of rumours of a full buyout from 70-percent owner GDF Suez have added something of a premium to the power generator’s shares. But now there’s official confirmation of a likely 6-billion-pound bid, IPR non-executives still have some power to push for a little more.

GDF Chief Executive Gerard Mestrallet wants a simpler company and an even clearer hold over the emerging markets-heavy IPR. So he’s has pitched an indicative, cash proposal at 390 pence a share. That’s a scant premium to the previous close, on March 28, of 383.4 pence. But it’s better understood as a 17 percent premium to where the shares traded two months earlier, before the rumour mill cranked up. The FTSE-100 is little changed over the same period, and GDF’s shares are down 6 percent.

The market, reasonably, intuits there may be a bit further to go: the shares were hovering around 405 pence on the morning of March 30. True, securing a big premium from a majority shareholder is counter-intuitive: there’s no chance of a rival bidder, and the standard M&A notion of a “control premium” doesn’t really apply. But by pre-empting an 18-month standstill agreement that runs until August, GDF has shown how much it wants full ownership now – perhaps fretting it could otherwise end up paying even more later.

IPR’s leverage comes because while the standstill agreement holds, any bid requires the approval of its six independent directors, led by senior independent director Neville Simms. GDF also can’t delist the company until it holds 85 percent, rather than the standard 75 percent. That defangs a standard threat used to bully minorities: accept a lacklustre offer or risk being left with untradeable stock. On the other hand, unless major outside shareholders start publicly dissenting, a smallish bump will probably do the trick. Investec reckons the stock is worth 417 pence a share, for example.

The clock is now ticking towards an April 26 bid deadline and the impetus to secure an agreement by then is strong. The market has got Simms et al so far. The final price will depend on pure negotiating savvy.

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