September 8, 2017 / 5:46 PM / 3 months ago

Exclusive - Brazil's Classico, AGC in talks for Cemig stake: sources

SAO PAULO (Reuters) - AGC Energia SA is in advanced talks to sell the 20.1 percent voting stake it holds in Cia Energética de Minas Gerais SA to investment bank Banco Classico SA, which could in turn be invited to share control of Brazil’s No. 3 power utility, two people with knowledge of the matter said on Friday.

According to one of the people, AGC Energia could fetch around 1.4 billion reais ($453 million) with the sale, which is expected to take place in coming weeks. In a surprise move announced late on Thursday, AGC Energia decided to break off Cemig’s shareholder accord, without detailing why.

Such a sale price would represent a premium of almost 100 percent over the value of Cemig’s common shares (CMIG3.SA), which fell 2.7 percent to close at 8.29 reais in São Paulo. Trading volume on the stock hit the highest level since May on the news.

For almost 15 years, AGC Energia and the state of Minas Gerais, which owns a 51 percent voting stake in Cemig, were tied to an accord that gave the former autonomy to decide strategy. The relation soured after Minas Gerais Governor Fernando Pimentel came to power in 2015 and sought to turn around Cemig, which had grown too big, too fast over the previous decade.

The people said both partners disagreed over plans to cut Cemig’s debt and dispose of troubled operations like renewable power firm Renova Energia SA (RNEW11.SA), which could soon be sold.

Cemig’s divestiture plans have taken longer than those of rivals, demonstrating the difficulties of trimming a company that expanded beyond power into fiber optics, information technology and gas distribution in recent years. Most of those takeovers have delivered subpar returns.

A partner like Classico, which also is a holder in state-controlled power group Centrais Elétricas Brasileiras SA, “is key to speeding up Cemig’s downsizing and liability management,” said one of the people, who asked for anonymity because the talks remain private.

Minas Gerais state would be willing to rewrite Cemig’s shareholder accord if Classico and AGC Energia agree to sign a deal, the same person added.

Cemig and AGC Energia declined to comment. Efforts to obtain comment from Classico’s representatives in Rio de Janeiro were not immediately successful. The state’s government did not have an immediate comment.

NEW BUSINESS

Chief Financial Officer Adezio Lima said in July that Cemig will fully dispose of a majority, 43 percent stake in Rio de Janeiro-based utility Light SA (LIGT3.SA) and focus on in-house generation, transmission, distribution and sale of electricity.

While Cemig’s consolidated debt fell to 12.5 billion reais at the end of June, the utility has lost the rights to operate four hydropower dams and has to repay 4.1 billion reais in liabilities before the end of the year.

    The people added that AGC Energia’s exit should speed the sale of Cemig’s stake in Renova to a unit of Brookfield Asset Management at 9 reais per unit. Reuters first reported the deal on July 7.

    Cemig and Light are part of Renova’s controlling bloc, and they have already agreed to be bought out by Brookfield, said the person. If the deal is concluded successfully, Brookfield will probably take Renova private, said the person.

    Units of Renova, a blend of the company’s preferred and common stock, rose 0.7 percent to 7.23 reais on Friday. The stock is up 20 percent this year.

    Lima said in July that exiting Renova could take around 60 days. A São Paulo-based spokesman for Canada’s Brookfield (BAMa.TO) declined to comment.

    A unit of infrastructure conglomerate Andrade Gutiérrez SA, AGC Energia had been negotiating a way to exit Cemig over the past months, one of the people said.

    As part of the shareholder accord with Minas Gerais, AGC Energia had control of several key management positions, including the vice presidency of new business - which negotiated and oversaw Cemig’s business expansion, acquisitions and greenfield projects.

    ($1 = 3.0891 reais)

    Reporting by Guillermo Parra-Bernal; Additional reporting by Luciano Costa in São Paulo; Editing by Matthew Lewis

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