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Our Cases

Splitting up of an energy company

Engagement

Advising an energy company on the restructuring decree.

Background

In 2004, the Dutch government decided that energy distribution companies had to be divided into a production/supply company and a network company. This decision was made in fulfilment of European agreements intended to lead to a European energy market. The timing and the decision-making processes associated with this decision were unclear; furthermore, there was a lot of resistance from the big energy companies. We advised a medium-size company that was wondering how to deal with the new situation.

Customer's dilemma

How to time their move correctly and how to guarantee continuity once a split was implemented. Should they side with the opponents of the upcoming order to split up the energy companies, or should they take a proactive approach?

Our contribution

We performed a thorough analysis of the imminent legislation and produced an estimate of the consequences for the various components of the company. Our conclusion was that three business components could be identified, each with a different risk/return profile: the supply business, the network business and the infrastructure business. The three components moved in totally different market situations and fields of competition. Splitting up these three activities would make their individual strengths more transparent, enabling shareholders to make an objective assessment of their risk/return profiles without cross-subsidy taking place. The project involved making separate business plans for each of the three business components; these three business plans were compared with the perspective of the company as a whole. JBR’s recommendation was that it made sense to split the company up, even though there was no obligation to do so! This would result in a business that was split into three divisions in advance of the legislation, enabling shareholders to stay ahead of the game. This would maximise shareholder value.

The result

A devolved energy company that stayed ahead of European and Dutch legislation and hence functioned as a role model for politicians and other energy companies.