According to unofficial information from the local media, the privatization adviser has suggested that the Montenegrin government does not accept the € 11.1 per share offer from a Greek consortium as the offer is conditional. The consortium offered to pay € 11.1 per share for an 18.3% stake in Elektroprivreda Crne Gore (Bloomberg: EPCG ME) on Friday. Despite placing the highest bid, the Greek consortium questioned certain non-negotiable issues in the sales and purchase agreement (SPA), requesting the concession and licences before signing the agreement. The highest bidder also asked the Montenegrin government to relinquish the shootout option, according to which the government has the option to buy back EPCG shares after five years. The winning company is obliged to take over the remaining minority at the same price offered to the government within one month of signing the SPA. However, according to unofficial information, the Greek company has refused to accept this obligation. In addition, the Greek consortium proposed new profit distribution according to which the government’s share in profit would be reduced from 60% to 35%. A competing bid of € 8.4 per share was placed by Italian-based A2A. The Italian firm already owns 15% of EPCG after purchasing the stake from minority shareholders on the market in May 2009. According to the same source, the Italian offer is not conditional.
Our view:
The tender committee has not provided any official information on whether the offer will be rejected outright or whether the government will enter negotiations with the highest bidder. Government officials have stated on several occasions that the bid price would be the most important criteria for the decision on strategic partnership. In view of Montenegro’s current budget problems, we believe the government will have more incentive to accept the Greek’s highest bid as it offers a 32.1% premium over the Italian bid. We believe this information, despite being unconfirmed, might reduce buying pressure on the market. EPCG currently trades at € 7.7 per share after soaring 16.5% in the previous week’s trading.