Is This Europe's Least Tempting Corporate Vacancy?

(Bloomberg Opinion) -- To pick up Elliot Management Corp as an activist investor is unfortunate. Having another hedge fund agitator in the form of Knight Vinke must be misery, especially when it's making rival demands. Add in a bidder with a blocking stake and German utility Uniper SE is a company where the CEO can scarcely think of themselves as the boss.

Andreas Schierenbeck has decided to give it a go, however, with the former ThyssenKrupp AG executive taking on one of the least tempting vacancies in corporate Europe. The hedge funds are backseat driving, and putative buyer Fortum Oyj has a near 50 percent stake. Unusually, the presence of ubiquitous troublemaker Elliott looks like the least of those burdens.

Fortum tried buying Uniper in 2017 and settled for a 49.99 percent stake after the target resisted and found a bizarre poison pill preventing the bidder from going higher. Uniper's assets include a small Russian facility with a drinking water license that can't pass into foreign hands, hence blocking a takeover by Fortum, which is controlled by the Finnish state.

Having a big shareholder with previous designs on the company plus a board wedded to independence has led to strategic paralysis. The current CEO, suffering ill health, and CFO said in February they would step aside to enable a new start – an honorable move.

Elliott, Knight Vinke and presumably other minorities want a way out. A fresh bid from Fortum would be ideal. But the activists, who speak for nearly half of the minority shares, have to get Uniper to drop the poison pill first.

German company rules preclude calling a shareholder vote that could force Uniper to sell the pesky water asset. Elliott is instead asking for a poll at May's annual meeting to make Uniper approach Fortum about a so-called domination agreement. The idea is that the Finns would make pay chunky dividends and agree a final buyout offer, in turn requiring Uniper to drop its takeover defenses.

The flaw in Elliott's plan is that domination agreements don't come cheap. The cost here may be prohibitive to Fortum, according to analysts at Bernstein. Hence Knight Vinke has devised a radical alternative: splitting Uniper into two companies, leaving one without the Russian water asset and therefore available for acquisition. Oddly, it's easier to force a full-blown breakup of a German company than to make it sell an asset with negligible revenue.

Uniper is now effectively being run by shareholder resolution, and Fortum holds the cards. What's more, Fortum is under no pressure. Before long it will be able to nominate half the supervisory board, when current members' terms expire, giving it de facto control if it can make friends with the employee representatives occupying the other seats.

The dynamics make a settlement with Fortum look inevitable one day. The longer the siege drags on, though, the greater the risk to Uniper's business. Schierenbeck could take the initiative and try striking a deal to sell Fortum the assets it really wants. Or he can occupy a role where he's boss in name only.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.