Naturgy Expands Alliance With Sonatrach; Shares Outperform IFM’s Takeover Bid Price


Naturgy (NTGY) has reached an historic agreement with the Algerian company to expand the capacity of the Medgaz pipeline that supplies natural gas to Spain. The agreement provides for a 2 bcm (2,000 million cubic metres) per year increase in the pipeline’s capacity, 25% more, to over 10 bcm/year from the fourth quarter of this year.

Once the extension is operational, 25% of Spanish natural gas consumption will pass through Medgaz and there will no longer be dependence on methane tankers. After a decade of uninterrupted operations and an initial investment of more than 840 million euros, the entry into operation of the Medgaz expansion reinforces the security of supply to Spain, as it is a key infrastructure for the transport of natural gas.

According to Bankinter analysts:

Naturgy is taking strategic steps outside the IFM takeover bid. In addition to this agreement with Sonatrach, the management team has announced the presentation of a new Strategic Plan on July 28. This will address such important issues for the group as divestments, dividend policy and details of the expansion plan in renewables.

The takeover bid is awaiting approval from the government, which has until mid-August to meet the legal deadline for its decision. It is most likely the government will give the go-ahead, but that it will do so by imposing more or less severe conditions. Meanwhile, for the first time since the announcement of the takeover bid, Naturgy’s stock price yesterday reached 22.37 euros/share, above the price of IFM’s takeover offer (22.30 euros/share).

The success of IFM’s bid is being complicated by several reasons: (i) Criteria Caixa’s announcement to strengthen its position in Naturgy, increasing its stake to 30% from 24.8% and showing itself as a strategic partner at national level; (ii) The delay in the approval of the takeover bid by the Government and the likely conditions required by the Executive for its approval; (iii) The improvement in the economic context and the strong rise in the price of raw materials since 26 January (+37% in Brent, +39.1% in the Henry Hub and +61% in the NBP), which is when IFM’s takeover bid was announced; (iv) The management team has resumed its medium/long-term planning activity with the announcement of the presentation of the Strategic Plan and this alliance with Sonatrach. And it is no longer waiting to see the outcome of the takeover bid to make its management decisions. IFM will have to improve the conditions of its offer or it will not be as successful as expected (partial takeover bid on 22.7% with a minimum acceptance of 17%). If IFM’s partial takeover bid does not succeed, there will no longer be the problem of the reduced free-float in the group’s shareholding (less than 9%), which was a drawback for investors.

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The Corner
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