The Supreme Court will determine the validity of the exclusion takeover of Cementos Portland Valderrivas by FCC at six euros per share approved by the CNMV in August 2016. The National Court ruled last year that the report with which it supported the price was contaminated by conflicts of interest. It was prepared by Banco Santander, which also financed the operation.
The exclusion of the Portland Stock Exchange is still in the pipeline, but soon there will be an answer that will settle the matter once and for all. The Supreme Court will clarify if the price at which the construction company acquired it is appropriate and if there were conflicts of interest in the report of the bank chaired by Ana Botín, according to a high court order. In addition, it will establish whether there should be a ranking in the criteria when evaluating a company in a tender offer and whether the CNMV has the power to demand that a specific one be used.
The minorities won a battle in April last year, when they demanded that the National Court revoke the green light from the CNMV to the takeover bid for a total of 310 million euros and that meant that Portland left the Spanish Stock Exchange in February 2017. The court agreed with them. The supervisor did not require Santander to use the theoretical book value – net worth between number of shares – in its appraisal, and the Hearing also admitted the existence of a “conflict of interest”, since the bank was judge and party to its double side of valuer and financier of the takeover bid.
The Hearing ruling ordered the CNMV to recalculate the fair price, while buying a report from the minorities, represented by Cremades & Calvo Sotelo, which set the theoretical book value of the cement company at 10.29 euros per share. The supervisor chaired by Sebastián Albella announced after hearing the sentence that he would appeal it. The Supreme Court has picked up the gauntlet, so the ruling has not been carried out.
It will be determined if the supervisor can require a specific valuation method
The CNMV, represented by the State Bar, argues that it “found that the price of the offer was in accordance with the provisions” and that the theoretical accounting valuation is not a criterion that should be given more relevance than the rest. The takeover regulations also include the cash flow discount –which essentially measures the ability of a company to generate profits–, which Santander took to assign a price range to Portland from 4.95 to 5.50 per action. Others are also mentioned, such as the net asset value, the average price, the price previously offered in an offer or multiples of comparable companies and transactions.
The CNMV also affirms that the Securities Market Law specifies that the report for the exclusion of a company must be from the administrators of the entity that is excluded, so the report cannot be discarded because it is not independent. It is true that the exclusion, and its price, must be approved at a shareholders’ meeting, but in Portland the control by FCC was almost total, at that time with 77.9%. The ability to override the decision of the minority was nil. In any case, the CNMV defends that it must be the one that values “the sufficiency and reasonableness of the offer”.
What is more, the agency launches a warning to sailors: that a decision of theirs, the official market watchdog, be amended, supposes a “doctrine that can be seriously harmful to general interests.”
From FCC, also represented in the open case, they warn that no standard “prevents the valuation report from being issued when there is a potential conflict of interest.” They argue that any appraiser has to “establish the necessary measures to prevent the flow of privileged information between its different areas of activity”, as established by law.
The resolution of the high court will be key to setting the prices of takeover bids in Spain
Another argument is that there is no jurisprudence on the CNMV’s ability to “apply a specific valuation method”. This is key, as it will determine the supervisor’s ability to decide on the future prices of takeover bids in Spain.
Minority. Small investors are usually invited as stone in takeover decisions that involve the final exclusion of a company from the Stock Market. It already happened with Telepizza, when several hedge funds they complained about the price of the takeover bid launched at six euros per share by KKR and other investors, it is happening now with the operation that is underway on MásMóvil at 22.5 euros per share, and also with the one announced by the president of Barón of Law, which wants to exclude the bodega from the market. Several shareholders denounce that the top manager of the wine-producing company Eduardo Santos-Ruiz Díaz, through his company Mazuelo Holding, is squeezing the takeover regulations to exclude the company at a lower price than it is worth without counting on small shareholders and using the resources of the listed company itself, as published by CincoDías on August 17. Santos-Ruiz Díaz already controls 90.4% of Barón de Ley and wants to take the firm out of the Stock Exchange at 109 euros per share.