PRIVATISATION
Privatisation process is not finished
when the sale is completed ...
 This is a sale process case of a group of
enterprises in the electric sector in Chile during
1980s, from which still there are consequences
remaining.
 Chile - electric sector
as you know Chile is a very long and narrow country,
for that reason there was monopoly in the electric
transmission sector in the past
This case is about the sale of ENDESA, an electric
generator enterprise which occupies over 50% of the
main part of the country
Privatisation process is not finished
when the sale is completed ...
ENDESA has a branch - TRANSELEC, which is the only
transmitter of the system
the other enterprise sold was CHILECTRA - a power
distributor in the metropolitan area (40% of the country’s
consumers)
The privatisation left consequences that ENDESA,
TRANSELEC and CHILECTRA are now controlled by the
same group, without the existence of regulations to
protect the consumers and promote competition in the
electric generating sector, could operate.
Chile - electric sector
Even though there has been a better efficiency, bigger
investment, cost reduction, and better price of the
company, there were deficiencies. So that in this
occasion, we want to emphasize this issue during this
meeting.
What we are going to comment in this case is about the
manner in which the shares were sold that have had
consequences until now and affecting in no controlling
shareholders.
Chile - electric sector
How it was sold?
Partial sales announcement were made - ENDESA and
CHILECTRA (firstly they announced only 30% was
going to be sold, then 60% and then 100%). This was
not a sound information for the privatisation process of
those enterprises.
Chile - electric sector
Shares were sold to the workers, in the stock markets,
and to institutional investors. Everything in small
packages.
It was allowed that the executive officers that participate
in the sale could buy shares as workers.
The executive officers created a incentive system in order
that the workers become members of an investment
society to represent them all.
This investment society has two kinds of shares:
1st for the executive officers - with full rights to control the
investment society, though they have very few shares.
2nd for the workers which had passive role.
Chile - electric sector
 Chile - electric sector (continued)
What happened?
ENDESA
Investment society
ExeShares of
cutive
the rest
officers’
workers
shares
A
ENERSIS
CHILECTRA
B
OTHERS
Shares class A: control the investment society
Shares class B: majority of shares but have passive role
TRANSELEC
Chile - electric sector
The investment society created ENERSIS which had
the investment society plus others as shareholders
As there was capital increase, the investment society
controlled ENERSIS without being majority and
through ENERSIS the investment society being a
minority controlling ENDESA and CHILECTRA.
This provides a privatisation process that allowed a
minority group to control 3 enterprises: ENDESA,
CHILECTRA and TRANSELEC, on the basis that the
workers had accepted their control over the
investment society.
Chile - electric sector
And that the minority and institutional shareholders
back them up in ENERSIS, CHILECTRA and
TRANSELEC.
Finally ENDESA- Spain had as an objective the
control of ENDESA - Chile, and for that went to
negotiate with the A class shareholders of the
investment society. As the confidence of the
minority and the institutional shareholders in
ENDESA and ENERSIS was based on the executive
officers of this companies are not necessarily in
ENDESA - Spain that wanted to buy.
Chile - electric sector
So ENDESA - Spain negotiated with the owners of
class A, the price of those shares, the buying price of
the class B shares to a public offer and the buying
price of the minority shares of ENDESA and ENERSIS
so they could control both enterprises.
But this negotiation included a different price for the
class A shares depending if ENDESA - Spain finished
controlling ENDESA - Chile and ENERSIS.
This agreement included other pacts that were
secretive, and where in the benefit of class A
shareholders of the investment society.
Chile - electric sector
The price of the A class shares, if ENDESA- Spain
could control ENDESA- Chile and ENERSIS, was
about 10 times the price of the class B shares. We
are speaking about an operation that cost about USD
1.6 billion
Chile - electric sector
And that the minority and institutional shareholders
back them up in ENERSIS, CHILECTRA and
TRANSELEC.
All this started with a group of executives of the
companies that are going to be sold buying shares
with their indemnities and small amount of private
capital.
This case created a bad publication of a a
privatisation process.
Chile - electric sector
Conclusion:
Transparency in the sale and in the relations between
shareholders
The parties once involved in the sale can not buy
Clear signal of what percentage of the enterprises will
be sold
Access to information for the minority shareholders
about the negotiations in the enterprise