Power Play

Uniper faces probe over Fortum takeover bid

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The sun doesn't set on a saga. Source: Reuters

Uniper’s fight to remain independent has taken another turn as hedge funds backed by US investor Paul Singer seek an investigation into efforts by E.ON’s fossil fuel spinoff to block a takeover by Finnish power firm Fortum. The Luxembourg investment firm Cornwall, which is backed by Mr. Singer’s Elliott Management, is calling for a special auditor to probe last year’s contentious bid.

Critics accuse Uniper’s management, led by Chief Executive Klaus Schäfer, of actively undermining the Fortum bid instead of maintaining neutrality. In particular, they suspect that Uniper lobbied Russian authorities, who have effectively blocked the takeover by limiting Fortum’s acquisition to less than 50 percent of the shares. Uniper’s activities in supplying power to Russia gave regulators there a voice in the sale.

There’s no denying that Mr. Schäfer has vociferously opposed the Fortum bid, arguing that the Finnish company would quickly shut down coal plants in Germany, putting some 5,000 employees out of work. Instead, Mr. Schäfer had his eye on a merger with RWE, Germany’s biggest operator of fossil fuel plants, which would have put him at the head of the merged company. Fortum’s existing stake – currently just under half at 47.1 percent – thwarted that plan.

Uniper's embattled chief executive got some backing from proxy advisory firms.

A probe of Uniper’s management now seems likely. Sources at Uniper said the company fears Mr. Singer and his allies, who control at least 7 percent of Uniper shares, have the votes to demand an audit at the company’s annual shareholders meeting. That’s partly because E.ON, which has already tendered its 46.7-percent stake in Uniper to Fortum pending regulatory approval, may back the move or abstain in a vote. Both options mean a probe stands a chance.

The embattled chief executive did get some backing from influential proxy advisory firms ISS and Glass Lewis, who have recommended that shareholders vote against the hedge fund motion. The critics have not supplied compelling information that a special auditor is necessary, they said.

Hedge funds have a reason to be upset – their own gamble with Uniper didn’t pay off. They had speculated that Fortum would come back with a higher offer to get complete control of Uniper after its initial tender of €22 a share drew only a smattering of shares on top of the E.ON stake. The intervention of the Russian authorities introduced another obstacle to a complete Fortum takeover.

The personal conflict between Mr. Schäfer and E.ON chief executive Johannes Teyssen, his erstwhile colleague, adds a further note of drama to the controversy. However, Mr. Teyssen must also tread carefully. He wants E.ON, which is shifting its focus to retail and networking business, to acquire similar assets from Innogy, an RWE spinoff. Worker representatives at E.ON were critical of Mr. Teyssen’s behavior toward Uniper, and would react negatively if he now seemed to be in league with hedge funds.

Jürgen Flauger covers energy for Handelsblatt. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the author: flauger@handelsblatt.com.

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