Naturgy extends its alliance with Sonatrach; Shares exceed IFM’s tender offer price


Naturgy (NTGY) has entered into a historic agreement with the Algerian company to expand the capacity of the Medgaz pipeline which supplies Spain with natural gas. The agreement provides for an increase of 2 bcm (2,000 million cubic meters) per year in pipeline capacity, or 25% more, to more than 10 bcm / year from the fourth quarter of this year.

Once the extension is operational, 25% of Spanish natural gas consumption will pass through Medgaz and there will be no longer any dependence on LNG carriers. After a decade of uninterrupted operation and an initial investment of more than 840 million euros, the commissioning of the Medgaz extension strengthens Spain’s security of supply, a key infrastructure for the transport of natural gas.

According to Bankinter analysts:

Naturgy is taking strategic measures outside of IFM’s takeover bid. In addition to this agreement with Sonatrach, the management team announced the presentation of a new strategic plan on July 28. This will address issues as important for the group as disposals, dividend policy and details of the expansion plan in renewable energies.

The takeover bid is awaiting approval from the government, which has until mid-August to meet the legal deadline for its decision. It is very likely that the government will give the green light, but that it will do so by imposing more or less severe conditions. At the same time, for the first time since the announcement of the public tender offer, the Naturgy share price yesterday reached 22.37 euros / share, above the price of the public tender offer of ‘IFM (22.30 euros / share).

The success of IFM’s offer is complicated by several reasons: (i) the announcement of Criteria Caixa to strengthen its position in Naturgy, by increasing its stake to 30% from 24.8% and by showing itself as a partner strategic at the national level; (ii) The delay in the approval of the public tender offer by the Government and the probable conditions required by the Executive for its approval; (iii) The improvement in the economic context and the sharp rise in commodity prices since January 26 (+ 37% in Brent, + 39.1% in the Henry Hub and + 61% in the NBP), date to which the takeover of IFM the offer was announced; (iv) The management team resumed its medium / long term planning activity with the announcement of the presentation of the Strategic Plan and of this alliance with Sonatrach. And he no longer waits to know the outcome of the takeover bid to make his management decisions. The IFM will have to improve the conditions of its offer or it will not have the expected success (partial takeover bid on 22.7% with a minimum acceptance of 17%). If IFM’s partial takeover does not succeed, there will no longer be the problem of the reduced free float of the group’s shareholding (less than 9%), which was a drag for investors.


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