On Wednesday, court of appeals No. 9 upheld a lower court decision to declare illegal the shareholder meetings called by the Tomsk and Kubak trunk grids to approve planned mergers with the Federal Grid Company (RTS: FEES). The lawsuits were filed by Neft-Aktiv, a Rosneft subsidiary. The court earlier ruled in favor of Neft-Aktiv, but its decision was then appealed by the electricity companies and the Central Moscow Depository.
Earlier, Neft-Aktiv lodged seven lawsuits against the power utilities in which it holds shares. Four of the lawsuits contesting a merger of Kubanenergo with Interregional Distribution Grid Co. South, a merger between the Tomsk and Kuban trunks grids and the Federal Grid Company and the takeover of Tomskenergy by TGK-11, were upheld by the court. Rosneft subsidiaries have also blocked the consolidation of the Kuban genco into TGK-8.
The protracted litigation will not have a tangible impact on quotations for Federal Grid Company shares, nor will its manufacturing and financial performance suffer as a result. The likely outcome of the court hearings may be the cancellation of the earlier decisions to move the Tomsk and Kuban trunk grids to a single share within the Federal Grid Company. In this case, the power grids would become Federal Grid Company subsidiaries. However, implementation of this procedure is fraught with difficulties and raises numerous questions. Earlier reports said Neft-Aktiv was bent on settling its court disputes with the companies via the conclusion of amicable settlements. According to our estimates, the likelihood that the parties will eventually come to terms is very high.
We do not currently have an official recommendation on Federal Grid Company shares (RTS: FEES).
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