Iberdrola SA (IBE) Chief Executive Officer Ignacio Galan faced renewed criticism from his biggest investor, which analysts say may be plotting to undo the international expansion he carried out at the Spanish utility.
Actividades de Construccion y Servicios SA General Secretary Jose Luis Del Valle Perez told Iberdrola stockholders gathered for their annual meeting in Bilbao, northern Spain, that Galan’s stewardship of the world’s biggest clean-energy producer has been geared toward blocking ACS’s attempts to both claim a board seat and increase its influence in Iberdrola.
Galan defended his record, saying he’d delivered return of 143 percent over the past 10 years including dividends and protected the company from Spain’s economic slump by investing in the U.K., the U.S. and Brazil.
“What is distasteful about this is that ACS is probably mainly interested in Iberdrola’s strong cash flows,” Ingo Speich, senior portfolio manager at Union Investment Privatfonds GmbH in Frankfurt, told delegates. “It cannot ultimately be in Iberdrola’s interest to act as ACS’s helping hand.”
While Speich, who said his company owns about 160 million euros of Iberdrola shares, said he “fully” supports Iberdrola’s management, he said he was concerned Galan might take action to defend the company from ACS that would damage shareholders interests. He said he would vote against a proposal to allow Galan to increase the company’s share capital by 50 percent.
“There are concerns among investors that the company might use these funds to embark on an acquisition spree merely to thwart ACS’s plans,” he said. “This strategy might well harm the company in the long term.”
Galan’s strategy has made Iberdrola the world’s biggest producer of renewable energy and the main conduit of Spain’s efforts to attract clean-power investment. Florentino Perez, chairman of Spanish builder ACS, sees more value in dismembering the company, Carles Vergara, a professor of finance at Iese business school in Barcelona, said.
“Florentino doesn’t care about” Iberdrola’s strategic importance for Spain, Vergara said in an interview before the meeting. “He’s looking out for his own interests and those of ACS shareholders.”
Galan today said Iberdrola’s record 2.87 billion-euro (4.1 billion) profit last year demonstrates the benefits of its expansion strategy.
“Reaching a record net profit clearly shows the positive impact of the investments we have made in recent years, which have given the group a portfolio of activities and geographical areas that can provide sustainable growth even in adverse scenarios like the one we’re in,” he told shareholders. “We’ll continue working to drive our company along the path of profitability and sustainable growth.”
That message was emphasized for shareholders arriving at Bilbao airport this morning. As they emerged from the terminal amid a drizzle they were greeted by a 20 meter-high Iberdrola advertisement on the side of the parking lot. “Once you find your path, there’s no turning back,” it said.
Del Valle said ACS would vote against a number of resolutions including one approving Galan’s management of the company during 2010 and 2011. Del Valle told directors that a change to the company’s statutes would prevent shareholders selling their voting rights and was “denying shareholders their rights.”
Madrid-based ACS, with less than a third of Iberdrola’s market value, has control of 20 percent of Iberdrola shares and is pushing Galan to grant him a representative on the utility’s board. It owns 13 percent of the shares directly, 1.9 percent through a “prepaid forward share” and controls 5.1 percent via a swap contract, according its annual report.
At last year’s meeting, shareholders voted to refuse ACS’s request for a seat on the board, after Iberdrola said it was a competitor. Galan said that decision was “fully justified” as shown by a January ruling by a Bilbao court ACS’s legal challenge to that decision. ACS is challenging the ruling at the Supreme Court.
ACS may wait to make its next bid for representation. Its position will be strengthened on July 1 when an Iberdrola statute limiting a single shareholder’s voting rights to 10 percent becomes illegal under Spanish law. The construction firm also plans to sell most of its renewable generating assets by the end of this year, weakening the case that ACS is a competitor.
‘Stuck With Problem’
“Galan is stuck with this problem,” said Alberto Espelosin, head of analysis at investment company Ibercaja Gestion SGIIC SA in Zaragoza, Spain, before the meeting. “Florentino wants to control the company but we’re very far from that at the moment.”
ACS would be able to add about 50 euro cents per share by selling off Iberdrola’s units in the U.S. and U.K., including Energy East and Scottish Power Plc, according to a January note by UBS AG.
Such a move would mean undoing much of Galan’s work to increase revenue more than three-fold since he joined the company a decade ago. Galan shifted gears in 2006 as Spain’s 10- year economic boom peaked announcing the acquisition of Scottish Power Plc, for which he paid $27.2 billion including debt, according to Bloomberg data. Iberdrola added U.S. network operator Energy East Corp. about $8 billion in 2008 including debt, and Brazil’s Elektro Eletricidade e Servicos SA for $2.4 billion this year.
Iberdrola’s shares, excluding dividends, have risen about 45 percent since Galan became CEO in May 2001 compared with a gain of almost 5 percent for EON AG, Germany’s biggest power utility, and a 26 percent decline for Rome-based Enel SpA in the same period. ACS rose about 220 percent.
“For the long-term the Iberdrola option of investing in the energy business internationally makes a lot of sense,” Vergara said. “The ACS vision is more short-termist.”
Galan has also taken steps that dilute ACS’s influence. Qatar Investment Authority, the investment arm of the Qatari government, bought a 6.2 percent stake in the utility in March to become the third-biggest investor after Basque savings bank Bilbao Bizkaia Kutxa.
ACS’s first-quarter profit dropped about 31 percent as Iberdrola elected to pay its dividend in May instead of March as it did in 2010. The construction firm saw income from its equity holdings slump 64 percent in the quarter.
The dispute between Galan and Perez risks becoming a row between “two alpha persons,” Hans-Martin Buhlman, a representative of the Association of Institutional Shareholders, told the meeting.
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