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Elliott calls for shareholder vote on Fortum control over Uniper

Activist investor Elliott Management Corp. is asking German utility Uniper SE to let shareholders vote on a so-called domination agreement that would give its largest investor, Finnish utility Fortum Oyj, the right to control the company without holding a majority.

Elliott subsidiary Elliott Advisors (UK) Ltd said March 21 that it formally asked Uniper's management board to convene an extraordinary general meeting for that purpose or alternatively, for management to prepare a domination agreement proposal for the agenda of an upcoming general meeting scheduled for May 22.

The proposal follows an attempt by the two utilities to restart cooperation talks, which prompted the impending departure of Uniper's CEO and CFO, after Fortum launched a hostile takeover attempt of Uniper. Finland's largest utility bought a 47% share in Uniper from Germany's E.ON SE in June 2018 and recently raised its stake to 49.99%.

Reuters previously reported that Fortum is unable to raise its stake further because Russian regulators have ruled it can only hold less than half of Uniper due to a strategic water testing license owned by the company's Russian unit, Unipro.

Implementation of a domination agreement, which is unique to European law, requires a shareholder vote by majority of at least 75% of the votes cast, according to law firm Allen & Overy LLP. Elliott is Uniper's second-largest shareholder, with 17.84%, and could join forces with Fortum to push its proposal through even though the two companies hold less than 75% of Fortum's total shares, given that many small minority shareholders typically skip annual meetings.

Uniper said in a statement that its management was currently assessing the request and a company spokeswoman declined to comment further on the proposal.

Pauliina Vuosio, Fortum's Vice President of External Communications, said Fortum has noted the announcement but emphasized that the company was not party to Elliott's proposal. "We are pleased to be in constructive discussions with Uniper. As we said when we entered these talks in February, these discussions are without a predetermined outcome," she told S&P Global Market Intelligence. Vuosio declined to comment on whether Fortum would consider voting with Elliott to push through the motion.

If Elliott's proposal was successful, Fortum would hold the reins at Uniper and also assume annual profits or losses at the company. Minority shareholders can challenge the shareholder resolution in court, delaying a squeeze-out, but Allen & Overy noted in a recent paper that such litigation has become less common following legislative reforms passed in 2009.

"Elliott believes the thus far ill-defined and ambiguous nature of the relationship between Uniper and Fortum has created an unsatisfactory and unsustainable dynamic, which is detrimental to Uniper," Elliott said in a statement. A lawful domination agreement would "[open] a pathway forward that ensures appropriate governance controls and the full pursuit of a value-maximizing strategy for all stakeholders," it said.

Although Uniper has opposed Fortum's overtures from the start, arguing that the two companies are mismatched, Fortum continues to believe it can exploit significant synergies between the utilities.

"We are not going to walk away," Fortum CEO Pekka Lundmark said during a news conference in February. "We continue to believe in our investment case. ... We are in this for the long run [and] if needed, we can be patient."