In a significant development for Italy's energy sector, the Moratti family has agreed to sell a 35% stake in oil refiner Saras to global commodity trader Vitol. This move aligns with the broader aim to delist Saras from the Milan Stock Exchange, representing a significant evolution in the company's ownership structure
On February 11th, Saras announced that the Moratti family, which is a joint owner and controls the company, had entered a sales contract with Vitol, agreeing to sell Saras shares amounting to about 35% of the share capital at a price of €1.75 per share with potential for an additional 5% under specific conditions outlined in a derivative contract. The implicit valuation of Saras is around €1.7 billion, placing the value of the transaction at almost €600 million. In the evening of February 20th, Consob disclosed that Vitol had acquired a 4.6% stake in the Moratti family's company within Angel Capital Management's portfolio, representing nearly half of CEO Angelo Moratti's share. Upon completion of the transaction, the entire Moratti family's stake in Saras will be transferred to Vitol. The objective, for Vitol, is to delist Saras's ordinary shares from trading on Milan’s Stock Exchange.
Target Overview
Founded in 1962 and public since 2006, Saras has evolved into a powerhouse in the Italian energy sector. Since its inauguration in 1966, the Sarroch refinery has been the cornerstone of Saras’s operations, boasting impressive production capacities and advanced facilities. Today, it stands as one of the largest and most technologically advanced refineries in the Mediterranean. But Saras’s ambitions extend far beyond refining. The company has diversified its portfolio, venturing into electricity production through gasification and renewable sources like wind energy. With a keen focus on sustainability, Saras has not only reduced emissions but also actively invested in green initiatives, such as the expansion of wind farms and the development of green hydrogen projects. Saras’s strategic moves have garnered attention, attracting partnerships and investments from global players like Rosneft and Enel Green Power, further solidifying its position in the market. Moreover, its commitment to environmental responsibility has earned accolades, including EMAS registration and Integrated Environmental Authorization, making it a pioneer in Italy's refining industry. Recent developments, such as the acquisition of energy companies, the expansion of renewable energy projects, and partnerships for carbon reduction initiatives, underscore Saras’s forward-thinking approach.
Before the Moratti family's divestment, Saras S.p.A.'s ownership structure portrayed a dynamic blend of stakeholders, each contributing to the company's strategic direction and market presence. As of September 2023, Angel Capital Management, founded and chaired by Angelo Moratti, held 10.005%. Massimo Moratti S.a.p.A., owned by Massimo Moratti, claimed a substantial 20.011% stake. Stella Holding S.p.A., of which the chairman is Gabriele Moratti, commanded a notable 10.005% share, underlining familial involvement. Urion Holdings (Malta) Limited, associated with Trafigura, possessed a 13.76% stake. The remaining 46.291% was distributed among various other shareholders, contributing to the company's diversified ownership landscape. Together, these stakeholders shaped Saras S.p.A.'s trajectory in Italy's dynamic energy market.
Saras represents an attractive investment because it owns the Sarroch plant in Sardinia, the biggest refinery in Europe with a capacity of 300000 barrels per day and positioned strategically in the middle of the Mediterranean Sea. Saras has struggled to grow and remain competitive in recent years, as demonstrated by the steady decline of its stock price since the IPO in May 2006, and an integration with Vitol’s experience and access to more markets could benefit the company greatly. Furthermore, War in Ukraine, tensions in the Red Sea and generalized geopolitical instability changed the game. The once-declining European refineries, hit by the threat of electric vehicles and by attempts to meet zero emissions targets, are now experiencing significant improvement in gross profit margins. These can be increased further if Europe is hit by supply shocks, such as the attacks on shipping in the Red Sea, as Europe is in fact now more reliant on imports of refined products. Gross profit from commodities trading rose from $36bn in 2018 to a record $148bn in 2022, largely due to the repercussions of the War in Ukraine, a study from consultants Oliver Wyman found. This environment is appealing to companies with higher risk appetite that are acquiring these ageing assets to make significant profits.
Founded in 1962 and public since 2006, Saras has evolved into a powerhouse in the Italian energy sector. Since its inauguration in 1966, the Sarroch refinery has been the cornerstone of Saras’s operations, boasting impressive production capacities and advanced facilities. Today, it stands as one of the largest and most technologically advanced refineries in the Mediterranean. But Saras’s ambitions extend far beyond refining. The company has diversified its portfolio, venturing into electricity production through gasification and renewable sources like wind energy. With a keen focus on sustainability, Saras has not only reduced emissions but also actively invested in green initiatives, such as the expansion of wind farms and the development of green hydrogen projects. Saras’s strategic moves have garnered attention, attracting partnerships and investments from global players like Rosneft and Enel Green Power, further solidifying its position in the market. Moreover, its commitment to environmental responsibility has earned accolades, including EMAS registration and Integrated Environmental Authorization, making it a pioneer in Italy's refining industry. Recent developments, such as the acquisition of energy companies, the expansion of renewable energy projects, and partnerships for carbon reduction initiatives, underscore Saras’s forward-thinking approach.
Before the Moratti family's divestment, Saras S.p.A.'s ownership structure portrayed a dynamic blend of stakeholders, each contributing to the company's strategic direction and market presence. As of September 2023, Angel Capital Management, founded and chaired by Angelo Moratti, held 10.005%. Massimo Moratti S.a.p.A., owned by Massimo Moratti, claimed a substantial 20.011% stake. Stella Holding S.p.A., of which the chairman is Gabriele Moratti, commanded a notable 10.005% share, underlining familial involvement. Urion Holdings (Malta) Limited, associated with Trafigura, possessed a 13.76% stake. The remaining 46.291% was distributed among various other shareholders, contributing to the company's diversified ownership landscape. Together, these stakeholders shaped Saras S.p.A.'s trajectory in Italy's dynamic energy market.
Saras represents an attractive investment because it owns the Sarroch plant in Sardinia, the biggest refinery in Europe with a capacity of 300000 barrels per day and positioned strategically in the middle of the Mediterranean Sea. Saras has struggled to grow and remain competitive in recent years, as demonstrated by the steady decline of its stock price since the IPO in May 2006, and an integration with Vitol’s experience and access to more markets could benefit the company greatly. Furthermore, War in Ukraine, tensions in the Red Sea and generalized geopolitical instability changed the game. The once-declining European refineries, hit by the threat of electric vehicles and by attempts to meet zero emissions targets, are now experiencing significant improvement in gross profit margins. These can be increased further if Europe is hit by supply shocks, such as the attacks on shipping in the Red Sea, as Europe is in fact now more reliant on imports of refined products. Gross profit from commodities trading rose from $36bn in 2018 to a record $148bn in 2022, largely due to the repercussions of the War in Ukraine, a study from consultants Oliver Wyman found. This environment is appealing to companies with higher risk appetite that are acquiring these ageing assets to make significant profits.
Data: FactSet
Investor Overview
Established in Rotterdam in 1966, Vitol has grown into a Swiss-based Dutch multinational energy and commodity trading giant. The company boasts a diverse portfolio that includes trading, logistics, power generation, retail businesses, and various other ventures. Vitol’s terminal and infrastructure assets span the globe, with around 16 million cubic meters of storage capacity. Notable ventures include its ownership stake in VTTI B.V., a storage and terminals business, and its acquisition of a 90% stake in a Mozambique coal terminal. In the realm of refining, Vitol's strategic assets include the Fujairah Refinery Company Limited in the Middle East and investments in refining assets across Europe and Australia. By 2020, Vitol had expanded its network to include over six thousand service stations, five refineries spanning three continents, 16 million cubic meters of storage capacity, and significant gas-fired power generation operations in the United Kingdom.
Additionally, the company has interests in exploration and production projects worldwide, with a focus on regions like the FSU and West Africa. Vitol's venture into aviation, power generation, and renewables reflects its adaptability to evolving market dynamics. With investments in power plants like VPI Immingham in the UK and a growing renewable power generation portfolio, Vitol is positioning itself as a key player in the transition to cleaner energy sources.
In a constantly evolving energy landscape, Vitol's adaptability and strategic investments ensure its relevance and resilience in an ever-changing industry. Vitol experienced much success during the last years, amassing a consistent cash pile that it’s now using to expand its business. The acquisition of Saras is only one step in Vitol’s plan to expand further in Europe. Just last year one of its subsidiaries, Petrol Ofisi, agreed to buy BP’s downstream business in Turkey. When it will all be said and done, Vitol’s investments will range in more than 9000 petrol stations, including the 3900 it owns through Vivo Energy in Africa.
Established in Rotterdam in 1966, Vitol has grown into a Swiss-based Dutch multinational energy and commodity trading giant. The company boasts a diverse portfolio that includes trading, logistics, power generation, retail businesses, and various other ventures. Vitol’s terminal and infrastructure assets span the globe, with around 16 million cubic meters of storage capacity. Notable ventures include its ownership stake in VTTI B.V., a storage and terminals business, and its acquisition of a 90% stake in a Mozambique coal terminal. In the realm of refining, Vitol's strategic assets include the Fujairah Refinery Company Limited in the Middle East and investments in refining assets across Europe and Australia. By 2020, Vitol had expanded its network to include over six thousand service stations, five refineries spanning three continents, 16 million cubic meters of storage capacity, and significant gas-fired power generation operations in the United Kingdom.
Additionally, the company has interests in exploration and production projects worldwide, with a focus on regions like the FSU and West Africa. Vitol's venture into aviation, power generation, and renewables reflects its adaptability to evolving market dynamics. With investments in power plants like VPI Immingham in the UK and a growing renewable power generation portfolio, Vitol is positioning itself as a key player in the transition to cleaner energy sources.
In a constantly evolving energy landscape, Vitol's adaptability and strategic investments ensure its relevance and resilience in an ever-changing industry. Vitol experienced much success during the last years, amassing a consistent cash pile that it’s now using to expand its business. The acquisition of Saras is only one step in Vitol’s plan to expand further in Europe. Just last year one of its subsidiaries, Petrol Ofisi, agreed to buy BP’s downstream business in Turkey. When it will all be said and done, Vitol’s investments will range in more than 9000 petrol stations, including the 3900 it owns through Vivo Energy in Africa.
Deal Structure and Rationale
Following the completion of the deal, Vitol will launch a mandatory tender offer for the remaining shares at the same price, offering a premium of approximately 10% based on recent market speculation. Under Italian law, any person (alone or in concern) acquiring voting capital of an Italian company listed in Italy in excess of certain percentages is obliged to launch a mandatory tender offer over all outstanding voting shares. The price in mandatory tender offers cannot be freely determined by the bidder and cannot be lower than the highest price paid by the bidder for the acquired voting shares.
The foreseen stake of 35% could increase to 40% with Angel Capital Management committing to sell Vitol any Saras shares it might receive under an already existing funded collar derivative contract. This contract was signed last year between Angel Capital Management and Bank of America. The transaction had involved a number of put options (in favor of ACM) and call options (in favor of BofA) on the underlying Saras shares, with automatic exercise upon the occurrence of the relevant conditions and with cash settlement. ACM had retained the right to opt for physical delivery of the underlying shares. To secure the financial obligations of these transactions, ACM had pledged the same Saras shares involved in the options agreement to BofA. This pledge had allowed ACM to retain voting rights over the shares, except in cases of default. The agreement covered up to 47,576,140 ordinary shares of Saras, equivalent to 5% of the company's capital.
From a strategic standpoint, the deal aligns seamlessly with Vitol's extensive history of strategic investments in the global energy sector. With a track record of developing major oil and gas fields in collaboration with industry leaders like Eni in Ghana, Vitol's expertise spans the entire energy value chain. The acquisition of Saras presents Vitol with an opportunity to further strengthen its position by investing in a high-quality asset poised to meet both Italy's and Europe's current and future energy demands.
As mentioned above, the objective, for Vitol, is to delist Saras's ordinary shares from trading on Milan’s Stock Exchange. This will allow more control and flexibility over the company’s strategic decisions and, specifically, a more seamless transition towards operational synergies. While the most straightforward way to delist the company would be through the mandatory tender offer, the outcome, as stated in Saras’s press release, “may also be achieved through delisting merger, should the required conditions be met”. In the process of delisting through a merger, the public company merges into a private one and the latter becomes the only owner of the target company, therefore resulting in a going-private transaction.
Massimo Moratti said that after 62 years since its founding by his father, he believes that Saras’s future success lies in integration with a global energy sector leader like Vitol. This integration offers access to essential relational, managerial, and financial resources required to effectively compete in the dynamic international market landscape. Vitol also provided reassurance that Saras will maintain its role in Sardinia, with a commitment from CEO Russel Hardy “to continuing the Moratti family’s legacy of diligent stewardship, safe operations and support for the local community and employees”.
Following the completion of the deal, Vitol will launch a mandatory tender offer for the remaining shares at the same price, offering a premium of approximately 10% based on recent market speculation. Under Italian law, any person (alone or in concern) acquiring voting capital of an Italian company listed in Italy in excess of certain percentages is obliged to launch a mandatory tender offer over all outstanding voting shares. The price in mandatory tender offers cannot be freely determined by the bidder and cannot be lower than the highest price paid by the bidder for the acquired voting shares.
The foreseen stake of 35% could increase to 40% with Angel Capital Management committing to sell Vitol any Saras shares it might receive under an already existing funded collar derivative contract. This contract was signed last year between Angel Capital Management and Bank of America. The transaction had involved a number of put options (in favor of ACM) and call options (in favor of BofA) on the underlying Saras shares, with automatic exercise upon the occurrence of the relevant conditions and with cash settlement. ACM had retained the right to opt for physical delivery of the underlying shares. To secure the financial obligations of these transactions, ACM had pledged the same Saras shares involved in the options agreement to BofA. This pledge had allowed ACM to retain voting rights over the shares, except in cases of default. The agreement covered up to 47,576,140 ordinary shares of Saras, equivalent to 5% of the company's capital.
From a strategic standpoint, the deal aligns seamlessly with Vitol's extensive history of strategic investments in the global energy sector. With a track record of developing major oil and gas fields in collaboration with industry leaders like Eni in Ghana, Vitol's expertise spans the entire energy value chain. The acquisition of Saras presents Vitol with an opportunity to further strengthen its position by investing in a high-quality asset poised to meet both Italy's and Europe's current and future energy demands.
As mentioned above, the objective, for Vitol, is to delist Saras's ordinary shares from trading on Milan’s Stock Exchange. This will allow more control and flexibility over the company’s strategic decisions and, specifically, a more seamless transition towards operational synergies. While the most straightforward way to delist the company would be through the mandatory tender offer, the outcome, as stated in Saras’s press release, “may also be achieved through delisting merger, should the required conditions be met”. In the process of delisting through a merger, the public company merges into a private one and the latter becomes the only owner of the target company, therefore resulting in a going-private transaction.
Massimo Moratti said that after 62 years since its founding by his father, he believes that Saras’s future success lies in integration with a global energy sector leader like Vitol. This integration offers access to essential relational, managerial, and financial resources required to effectively compete in the dynamic international market landscape. Vitol also provided reassurance that Saras will maintain its role in Sardinia, with a commitment from CEO Russel Hardy “to continuing the Moratti family’s legacy of diligent stewardship, safe operations and support for the local community and employees”.
Consideration of Other Stakeholders
After the initial 4.63% of February 12th, Consob communications revealed that Vitol increased its stake first to 5.22% on February 16th and then to 10.39% on March 5th. While the agreement between the parties is solid and will in all likelihood be completed as planned, there are two important players to consider further.
The first is the Italian Government, has reviewed the transaction under its "golden power" vetting rules, which concerns industries deemed strategically important such as banking, energy, telecoms, and health. Rome aims to secure commitments from Vitol regarding job preservation, investments, and continuity of supplies; as of April 26, 2024, the Italian government has authorized the aforementioned plans of a change in ownership.
The second is Trafigura, headquartered in Geneva, and one of Vitol’s primary competitors. Trafigura initially decreased its stake in Saras from 14.98% to 13.22% in January, followed by a further reduction to 9.6% in February, causing some volatility in Saras’s stock price. It remains to be seen whether Trafigura will continue divesting its shares as Vitol’s acquisition progresses. This possibility seems probable, especially considering reports of Trafigura's negotiations to acquire an Exxon oil refinery in France, suggesting a strategic repositioning within the European energy sector.
After the initial 4.63% of February 12th, Consob communications revealed that Vitol increased its stake first to 5.22% on February 16th and then to 10.39% on March 5th. While the agreement between the parties is solid and will in all likelihood be completed as planned, there are two important players to consider further.
The first is the Italian Government, has reviewed the transaction under its "golden power" vetting rules, which concerns industries deemed strategically important such as banking, energy, telecoms, and health. Rome aims to secure commitments from Vitol regarding job preservation, investments, and continuity of supplies; as of April 26, 2024, the Italian government has authorized the aforementioned plans of a change in ownership.
The second is Trafigura, headquartered in Geneva, and one of Vitol’s primary competitors. Trafigura initially decreased its stake in Saras from 14.98% to 13.22% in January, followed by a further reduction to 9.6% in February, causing some volatility in Saras’s stock price. It remains to be seen whether Trafigura will continue divesting its shares as Vitol’s acquisition progresses. This possibility seems probable, especially considering reports of Trafigura's negotiations to acquire an Exxon oil refinery in France, suggesting a strategic repositioning within the European energy sector.
The Market’s Response
Vitol’s offer of €1.75 euros per share represented a premium of around 10% from the market closing price of the 6th of February, before the press’s speculations on the acquisition drove the price to new heights. Right now, in fact, it’s trading over the proposed price. It is noteworthy to mention that the offer is around 21% higher with respect to the volume weighted average price of the 6 months prior and 30% higher with respect to the volume weighted average price of the 12 months prior.
Vitol’s offer of €1.75 euros per share represented a premium of around 10% from the market closing price of the 6th of February, before the press’s speculations on the acquisition drove the price to new heights. Right now, in fact, it’s trading over the proposed price. It is noteworthy to mention that the offer is around 21% higher with respect to the volume weighted average price of the 6 months prior and 30% higher with respect to the volume weighted average price of the 12 months prior.
Saras’s stock price movements in the last six months. Data: Google Finance
This is good news for the Moratti family, who benefited greatly from the IPO and still managed to get a competitive price, despite the struggles of the company’s recent years, but not so much for the small shareholders, who joined the IPO at around €6 per share. Moreover, the acquisition is terrible news for the Milan Stock Exchange. Piazza Affari has seen many companies leave the market (most notably Tod’s ongoing OPA with L Catterton) and Saras is just the last symptom of a disease that gives no signs of stopping and to whom it is difficult to find a cure.
Exor, the holding group of the Agnelli family, road and airport operator Atlantia and travel caterer Autogrill are other major players that left Milan in the last two years. An excessive concentration in some industries, the lack of companies with widespread shareholding, the low free float (i.e. the number of shares that is available to the public for trading in the secondary market, in Italy 10% is enough) are among the reasons why Piazza Affari is struggling to compete at the European and world level. Furthermore, we should not ignore the cultural factor: many family-owned Italian businesses do not like the idea of a public offering (the market is merely seen as a way to raise cash, for example for M&A activity) and if they do, complicated procedures often crush their dream of going public. The following graph shows ratios of Italian and US indexes and respective GDPs. As we can see the US ratio increased while the Italian counterpart did the opposite.
Exor, the holding group of the Agnelli family, road and airport operator Atlantia and travel caterer Autogrill are other major players that left Milan in the last two years. An excessive concentration in some industries, the lack of companies with widespread shareholding, the low free float (i.e. the number of shares that is available to the public for trading in the secondary market, in Italy 10% is enough) are among the reasons why Piazza Affari is struggling to compete at the European and world level. Furthermore, we should not ignore the cultural factor: many family-owned Italian businesses do not like the idea of a public offering (the market is merely seen as a way to raise cash, for example for M&A activity) and if they do, complicated procedures often crush their dream of going public. The following graph shows ratios of Italian and US indexes and respective GDPs. As we can see the US ratio increased while the Italian counterpart did the opposite.
Source: Mondo Economico
Due to this situation international investors are more and more reluctant to invest in Italy and Italian households experience a slow growth in wealth, if any. With a banking sector on par with the European panorama, it’s surprising to see the Italian Stock Market’s backwardness with respect to its counterparts (especially the UK).
Conclusion
All things considered, this deal appears set to be a significant chapter in a succession of delistings from the Italian stock exchange. Vitol’s strategic interest is clear, while the Moratti family suggests that Saras’s development and growth is also poised to benefit from this transition. Saras is an important Italian company; the latest developments carry implications for several important stakeholders and may, consequently, serve to reinforce pessimistic sentiment around the Italian business environment.
All things considered, this deal appears set to be a significant chapter in a succession of delistings from the Italian stock exchange. Vitol’s strategic interest is clear, while the Moratti family suggests that Saras’s development and growth is also poised to benefit from this transition. Saras is an important Italian company; the latest developments carry implications for several important stakeholders and may, consequently, serve to reinforce pessimistic sentiment around the Italian business environment.
By Federica Guirguis, Vittorio Granuzzo, Lorenzo Pastorelli.
SOURCES
- Financial Times
- Reuters
- Mondo Economico
- Il Sole 24 Ore
- Saras Company Website
- Vitol Company Website
- Clifford Chance
- Soldi Online
- Ansa.it