Aquila European Renewables says that the board has consulted extensively with shareholders and believes that it would lose a continuation vote. It is now publishing a circular to convene a meeting at which shareholders will be asked to approve a managed wind-down of the company.
Background
A continuation vote in 2023 was built into the company’s structure. As with every other trust in the sector, the discount widened as interest rates rose. At the AGM held on 14 June 2023, 73,747,364 shares were voted against continuation (about 19.0% of the shares in circulation and 25.9% of those voting). The board committed to undertake a review of broader options if its existing initiatives failed to revive the share price.
In December 2023, following unsolicited proposals made privately, Octopus Renewables Infrastructure Trust publicly proposed a merger with the company [we opposed this idea, believing Aquila European was large enough and had sufficient potential to justify its independent existence]. The Aquila European board said it would look at all options for the future of the company [kickstarting a feeding frenzy that would almost certainly result in the trust’s demise].
The board received indicative non-binding offers from three investment companies, including Octopus Renewables. Each offer proposed swapping AERI shares for shares in the offeror, one included a 10% cash exit facility. Each of the three indicative offers represented an implied look through value ranging from a small premium to a discount to the share price at the time the proposals were received. On 10 May 2024 the board terminated the process on the basis of:
- the discount to NAV at which the listed investment company renewables sector was trading;
- the board’s belief that a combination with another listed investment company was not value enhancing when weighed against the other potential options; and
- feedback from shareholders representing a majority of the voting rights indicating that they were not supportive of the idea.
However, the board kept the review process going.
Since 22 December 2023, the board has worked with Deutsche Numis to explore the sale of some or all of the company’s assets. One potential bidder proposed a takeover offer, but not at a level that the board thought would be acceptable to shareholders.
Affiliates of the investment adviser have expressed interest in buying the assets of the company. The board felt it was not in the best interests of shareholders to proceed on the terms suggested. That does not mean that sales to these parties are off the table if a managed wind-down is approved.
Shareholders representing a majority of the voting rights have told the board that they do want the company to carry on with its current strategy and investment policy. Many asked for an exit close to NAV, but the means of achieving this did not present themselves through the above process.
The recent sale of the stake in the Tesla wind farm at a premium to NAV gives hope that a managed wind-down could achieve the desired result – although the board cautions that different technologies in differing geographies display very variable levels of liquidity and pricing visibility.
Many potential offerors said that the diversified nature of the portfolio, across both geographies and technologies, limited their interest in a transaction for all of the assets of the company. Dismembering the portfolio will result in a larger potential pool of buyers.
Next steps
The meeting is scheduled for 30 September.
[Aquila European Renewables is trading on a 23.5% discount to NAV. Incredibly, that is relatively tight within the sector and matches the rating on Octopus Renewables. The trust’s five-year returns – which more or less cover the period since launch in June 2019 – are lacklustre (second-worst in the sector behind US Solar). We understand why shareholders are frustrated. We think that the proposal will likely be approved.]
AERI : Aquila European preps ground for managed wind-down
