Hello, is Enibody out there? | FT Alphaville

Hello, is Enibody out there?

Knight Vinke – thy name strikes fear into the hearts of chief executives across the land.

The activist investor, armed with just a minority stake, has in the past jousted with such dragons of corporate waste as Royal Dutch Shell and its British-Dutch dual board structure, as well as mighty HSBC’s disastrous sojourn into the US mortgage market.

But in its most recent duel with Italian energy conglomerate Eni, the valiant knight appears more quixotic than courtly.

Eni, the argument goes, is worth much more than the sum of its parts. Slice the high octane oil and gas exploration arm from the mundane utility-like power division and the blood of shareholder value will rain down upon the land.

Analyst sum of parts calculations consistently value Eni as worth more to its shareholders dismembered than whole; Knight Vinke just wants the chance to wield the blade.

Supporters of this argument, such as Lex, cite the break up of British Gas which doubled the share prices of Centrica, National Grid and BG Group. No other other national energy company in Europe encompasses both major upstream and major downstream operations, so why should Eni?

Firstly, breaking up Eni  would not necessarily release value, but destroy it. One must murder to dissect.  As Exane BNP Paribas analysts point out, synergies from the existing structure risk being obliterated.

Eni currently sells its gas via its own gas marketing business, transports this using its own pipelines, and can woo host countries with its access to end clients.  Knight Vinke overlook the benefits of Eni having a defensive gas and power arm, which provide some insulation from vacillating commodities prices.

Some shareholders squealed when the interim dividend was trimmed earlier this year, but as energy prices have rebounded this could yet look shrewd when the final dividend is due.

Secondly, any deal will need Silvio’s say-so. The Italian state owns 30 per cent of the company, 20 per cent through the Treasury, 10 per cent through the state-controlled Cassa Depositi e Prestiti, and would be loath to relinquish this position. The energy security argument does not wash. When negotiating with Gazprom, composite value is not a clear substitute for bulk.

Thus far the Knight’s latest crusade appears to have fallen on deaf ears. Successful activist investors draw their power from riding the crests of realisable  goals to their conclusion. In calling for Eni’s break up Knight Vinke may yet be forced into an embarrassing retreat.

Related links:
Eni and the Gazprom argument – FT Energy Source
Cage Rattling – FT