“An investment for the independence of France” but an investment that could be costly to public finances. According to AFP, Bruno Le Maire indicated, at the end of the Council of Ministers, that the government plans to mobilize 12.7 billion euros for the renationalisation of the energy company EDF as well as for “any other operations that may be necessary ‘by the end of the year’. This amount is indicated by the amending finance bill, presented today.
Last Wednesday, Prime Minister Elisabeth Borne confirmed, before Parliament, “the intention of the State to hold 100% of the capital of EDF”. An announcement that immediately caused a 15% increase in the energy company’s share price. Two paths are possible for this renationalisation: the law, a very unlikely option, and a market operation, which is simpler and above all faster.
The State should therefore launch a takeover bid followed by a squeeze-out to acquire some 16% of the capital that it does not hold in EDF. To do this, it will appoint one, or even several, businesses that will carry out due diligence in order to determine the offer price. Currently, EDF is valued at 35 billion euros on the stock market (against 100 billion in 2005 when it was listed on the stock market).
The objective, during this first stage, is to convince enough shareholders to sell their shares to hold 90% of the capital. From this threshold, the shareholder (the French State in this case) then has the possibility of withdrawing the company from the Stock Exchange, because the securities remaining in the hands of the public are obligatorily contributed to a public squeeze-out offer ( OPRO), even if the remaining shareholders do not agree on the proposed price. Note that it is the Pacte law, so dear to President Emmanuel Macron, which lowered the threshold for compulsory withdrawal from 95% to 90%.
Reach the 90% threshold
The challenge for the State is therefore to reach this threshold of 90%. Its only lever to convince shareholders to sell their shares is the premium it can offer compared to its current price (around 9 euros per share this Thursday, July 7, an increase of 13% compared to the previous day). . The stakes around this bonus are not negligible. If it were deemed too low, it could provoke the discontent of small shareholders, some of whom bought their shares at a high price.
The action was worth 32 euros in 2005, during the IPO of EDF. The offer should not be lower than 10 euros, which is the average target price at three months, according to the consensus. This would bring the bill for the State to 6 or 7 billion euros, depending on the bonus offered.
By way of comparison, even if it concerns another sector, the banking group BPCE offered last year, to buy back all of its listed subsidiary Natixis, a premium of 18% compared to the last closing price or 43% compared to the average price of the last 60 prices preceding the announcement of the purchase offer followed by a squeeze-out. An operation then delicate to manage for the mutualist group in terms of image, despite this bonus which fixed the price of the share at 4 euros, against 19.55 euros when it was listed on the stock market in 2006. Some of BPCE’s clients felt cheated by this withdrawal offer, especially since some of them had been advised by… their bank to buy these securities.
Watching out for small individual shareholders
The opening of EDF’s capital in 2005 was intended to be a fine example of “popular shareholding in France”. So it failed. However, it was clearly specified in the law allowing the opening of EDF’s capital that the State had to remain a shareholder with at least 70%, for the sake of “general interest”.
Today, EDF refuses to specify the weight of individual shareholders in the float. It must be important as long as institutional investors have taken care to lighten up, if not exit, from this company which continues to accumulate negative financial performances and which displays a colossal debt. “A value to be avoided for a long time”, entrusts us with a manager. But who could find however a new speculative attraction. As a result, the government has no interest in letting the matter drag on too long, at the risk of seeing the title appreciate, and therefore the final bill, become heavier for the State. However, no timetable has been put forward by the public authorities.
Why renationalise EDF?
The State currently owns nearly 84% of EDF. Holding 16% additional capital, what will that change? Above all, this operation allows the State to withdraw the company from the stock market and thus to get it out of the dictatorship of the financial markets. The electrician indeed fears a further deterioration in its rating while the rating agency Standard & Poors placed it, at the end of May, on negative watch. The risk for EDF is to be unable to refinance its debt and not to be able to negotiate new lines of financing. However, EDF needs a lot of cash to carry out, among other things, the construction of six new EPRs, ordered by Emmanuel Macron, or even eight additional ones. A colossal project valued at at least 50 billion euros. An amount that necessarily requires broad state participation. By renationalizing EDF, the State will therefore have more leeway to find financing mechanisms. Still, this nationalization is only a necessary first step, and not a structural solution to get EDF out of the impasse. The French government must now engage in negotiations with Brussels as soon as possible, on the regulation of nuclear power and the methods of financing new nuclear power. Despite the issues of energy sovereignty revived by the war in Ukraine, the Commission could be very demanding on the rules of competition.