15 July 2022, after the close of the main trading session, the Moscow Exchange Rosseti and FGC UES announced the convening of extraordinary meetings of shareholders (VOSA), within the framework of which they raised the issue of reorganizing the two societies in the form of joining each other.
This merger was seriously discussed at the beginning of 2020., but there were always reasons, not allowing it: FIRST COVID-19, and then a change in the leadership of Rosseti. So let's see, why this deal can take place now.
General information about FGC UES and Rosseti
Rosseti Group is one of the world's largest power grid holdings, providing electricity to consumers in 78 subjects of the Russian Federation. The company's asset portfolio consists of 33 subsidiaries, the main of which are 11 interregional distribution grid companies and backbone grid company.
Key assets of Rosseti:
- Interregional distribution grid companies: Rosseti Lenenergo, Rosseti North-West, Rosseti Volga, "Rosseti Center and Volga Region", Rosseti Ural, «Rosseti Kuban», «Rosseti Yug», «Rosseti Sibir», Rosseti Moscow Region, Rosseti Centre, Rosseti North Caucasus.
- Backbone grid company — FGC UES.
Distribution of Rosseti shares:
- Russian Federation - 88,04%.
- Free-float — 11,96%.
FGC UES is the monopolist of the Russian energy market, the main activity of which is the transmission of electricity through the Unified National Electric Grid. The Government of the Russian Federation included the company in the list of backbone organizations of Russia, of strategic importance.
The main consumers of FGC UES services for the transmission of electricity are interregional distribution grid companies - subsidiaries of Rosseti, — Russian sales companies and large industrial enterprises.
Distribution of shares of FGC UES:
- "Rosseti" - 80,13%.
- Free-float — 19,28%.
- "Rosimushchestvo" - 0,59%.
The main consumers of FGC UES:
- "Rosseti Kuban" - 3%.
- "Inter RAO" — 3%.
- "Rosseti MR" - 9%.
- "Rosseti Tyumen" - 8%.
- "Rosseti Center" - 7%.
- "Rosseti Ural" - 6%.
- "Rosseti Volga" - 6%.
- "Rosseti CPU" - 5%.
- "Rosseti Siberia" - 5%.
- "Rosseti Lenenergo" - 4%.
- Other consumers - 44%.
The main motives of this transaction
All worth highlighting 4 drivers, which made the state think about the current merger:
- Improved efficiency: this transaction should increase coordination at the level of investment programs and repair work and will lead to savings on duplicating functions of companies.
- Growth of dividends: if the company manages to improve efficiency, net profit and dividend payments to shareholders will increase.
- Consolidation of FGC UES in anticipation of large investments: this can lead to a reduction in the cost of borrowing, since it is easier for a large combined company to issue new debt securities due to reduced interest rates.
- Consolidation Sector: in the future, the state on the basis of FGC UES will be able to unite all power grid assets.
Terms of the transaction
16 shareholders' meeting will be held on september, where the issue of reorganization of the public joint-stock company "Russian Grids" in the form of a merger with the public joint-stock company "Federal Grid Company of the Unified Energy System" will be discussed.
If this transaction is approved at the EGM of FGC UES and Rosseti, then all shareholders who disagree with it will receive an offer:
- Rosseti will buy back its ordinary and preferred shares at a valuation of 0.6058 and 1,273 R.
- FGC UES - according to 0,0904 R.
Now it is possible to earn on this ransom, if you buy Rosseti shares on the Moscow Exchange up to 19 August and FGC UES until 17 august, but the yield on this transaction will be unsatisfactory - in the region 4% per annum on shares of FGC UES and preferred shares of Rosseti and less than 0% on ordinary securities of Rosseti. Against their background, even OFZs look like a more attractive investment..
Note. When calculating the yield, the current exchange quotations of Rosseti were taken into account - 0.6267 and 1,247 R for ordinary share and preferred paper and FGC UES — 0,0886 R. The maximum possible deadlines were laid: 45 days - the period of validity of the offer and 30 days to receive money. In this way, shareholders will receive money in their accounts at the end of November 2022
What will this deal bring in the long run?? As a result, the United Grid Company is formed - the operator of backbone networks and the owner of controlling stakes in IDGC. It is planned to create a new sector leader on the basis of FGC, that is, the company will make an additional issue, into whose shares the securities of Rosseti shareholders will be converted.
A further possible scenario for the development of the situation will be the complete consolidation of the entire Russian power grid complex - FGC UES can completely buy out the interregional distribution assets of Rosseti traded on the Moscow Exchange.
What's the bottom line?
This transaction is neutral in the short term - it is impossible to earn significant money on it, but in the long run it's good news, it will lead to an increase in operational and financial efficiency, increase in dividends, and in the future it will be possible to switch to one share of the entire Russian grid complex, what the last few years have been talking about.
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