Knight Vinke, the activist investor group, has Italian energy group Eni firmly in its sights. Yesterday the group, which owns almost 1 per cent of Eni’s shares, sent out a press release referring to an FT Lex note which argued that the combination of a growth-focused oil and gas exploration business with a high dividend-paying utility was a bad match. Breaking it up would release as much as 1.5 times the company’s current value. Lex ventured that this in turn could have an energy security pay-off, such as boosting negotiations with Gazprom over gas supply.
The activist investor group has confirmed it feels the same way. In a statement released yesterday afternoon it argued that the structure not only made little financial sense, but that it burdened Italian households and hindered the company’s ability to create jobs.
It also referred to energy security:
This structure, which was designed originally to promote the creation of a national energy champion capable of entering into gas supply contracts with the largest producers, is handicapped by these issues and could be improved upon, particularly in light of the experience of Europe’s other major energy markets.
The energy security argument is an interesting one. As Knight Vinke’s statement acknowledges, the structure it now finds so cumbersome came about largely to create a national champion big enough to deal with the likes of Gazprom. And the two have certainly worked together extensively, collaborating on a Libyan venture, and with Eni agreeing to work on Russia’s proposed South Stream gas pipeline, and buying – and then selling back – a stake in Gazprom Neft. Knight Vinke argues that Eni’s utility business on its own would be less exposed to commodities price risk, and therefore more able to take on debt. The question is, how would that affect its relationship with Gazprom?
Related links:
Gazprom in $4.2bn deal with Eni over Neft (FT, 07/04/09)
Lex: Eni (FT, 02/09/09)
