Hello all, and thank you for joining us on such a short notice. This is Sandrine from Eramet. Happy to introduce Christel Bories, our Chair and CEO, and Simon Henochsberg, our CFO. I hand over, Christel and Simon, to you.
Hello, everyone, and thank you for being here. We should have a presentation that will be on the screen. I am just waiting for this to be displayed. And you will receive a communique, I am sorry for that, but because we had some delay linked to the approval of the different quotes in our communique. And you will see there are several. Maybe I will introduce anyway, saying that Eramet is taking a decisive step today to consolidate its future. Our board of directors this morning has confirmed the launch, before the end of this year, of the EUR 500 million capital increase that we announced in February. As you know, this transaction is essential to strengthen the group equity and secure its financial position and continue to implement our strategy.
It will be based on a strategic investment by the French state, consistent with their objective to secure critical minerals supply chains for France and Europe. This announcement is coming with an agreement with our two reference shareholders, the APE, the French state shareholding agency, and the Sorame-CEIR, representing the Duval family. We have reached an agreement on their participation. This announcement marks a key milestone for Eramet. It really enable us to complete, before year-end, the part of our three pillar funding plan, which is the capital increase. As you know, this financing plan has three pillars. The first one is a performance improvement plan, and we are progressing well on it. The second one is the monetization of assets, and here also we have productive discussions on some of our assets.
And the key element of the announcement today is this equity strengthening through this capital increase, that will be supported by this strategic investment of the French state, and that Simon will explain just after me. Over the past few months, several investors have expressed an interest in participating in this transaction. We have reviewed with the board of directors the various proposals received, and unanimously, the board approved the one that we are presenting today. This arrangement is expected to be formalized in the coming days. This solution addresses the group's immediate financing needs, while preserving Eramet's ability to enter into additional partnerships in the future. Following this investment, the French state, with APE, will become Eramet's largest shareholder. Sorame-CEIR, the Duval family, will become our second-largest shareholder, and they would enter into a new shareholder agreement.
I will now hand over to Simon, who will take you through the main terms of the transaction.
Thank you, Christel. Good evening to everyone. I will quickly comment what is the structure of the transaction, then I will come back rapidly on the calendar. Regarding the structure of the transaction, we will first have the rights issue, and the state, so APE, the French state, will participate in two ways. First of all, they will subscribe pro rata of their share, which is 27.1%, and they will buy all or part of the rights of the families. This transaction will be done at the theoretical value with a discount of 5%. The amount of rights that will be bought by the state depends on market conditions by the moment when we launch this rights issue.
The idea is that the state would purchase the maximum amount, preferably all of the rights of the family, and would then exercise those rights and subscribe for the full share of the family. So if you add their share plus the share of the family, the French state will be effectively subscribing for close to two-thirds of the rights issue. Since the state cannot own more than 49% of effective voting rights, they may not be able to buy the full amount of shares from the family. This is why there could be a second leg to this transaction. If the French state cannot buy all the rights, then there would be a second step where all the rights that were not bought by the French state, then the Duval family would exercise those and subscribe to the rights issue.
As a second step, there would be a put/call option between the family and the French state, allowing the French state to buy those shares as if they had bought all the rights from the family, with the limit of the French state remaining below 50% of the share capital. The transaction price for this second leg of the transaction is calculated in a way to make it equivalent to a direct purchase of the full amount of rights by the French state. This is the technicalities. This second step means that the French state would need some regulatory approvals to be able to increase voting rights. This is why this second step would not happen right away if it is needed, and it would happen a bit later once those regulatory approvals have been obtained.
Once all of this is done, the Duval family will convert their shares into bearer shares, and they undertake not to hold more than 30% of the voting rights. There will be a new shareholder agreement between the two shareholders. Eramet, as part of this transaction, has also undertook, we will only resume dividend payments once the leverage ratio is below one. Regarding the timing of the transaction, as you know, we had announced the transaction early. This was announced since February. We had a vote in AGM to allow the board to take a decision on this transaction in May. Since then, we have been in preparation, and today we announce this decision to retain the offer from the French state.
The next step for us will be to file with the AMF, which is the French market authority, to obtain a waiver, as the French state will exceed the 30% threshold. Then we will look to execute this transaction after our Q3 results and before year-end. This is a description on the overall structure and the calendar. I leave to Christel to say a few words.
I think I will keep the time for the question. It is very good news for the company, as we will be able to deliver on this critical step of our financing plan. Also, it shows that Eramet is of strategic importance to France and Europe in securing access to critical minerals. This transaction will help the company to strengthen its balance sheet and continue implementing the other pillars of its funding plan under the best possible condition, and return to growth over the medium term. So good news. A good step in our way to recover and improve the group, and restore the group financial position. We will now be happy to take your questions. Operator, I hand over to you.
Thank you so much, madam. This is the conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove your question, please press star and two. The first question comes from Jason Fairclough of Bank of America.
Good afternoon, Christel. Good afternoon, team. Thanks for the update. Look, a couple of, I hope, really simple questions. I just wanted to understand, is the French state effectively acting as an underwriter on the entire EUR 500 million? Is that the way we should think about this?
Yes.
Not exactly. What the French state is doing is that they are subscribing for their share and the family's share. Which means that the full subscription of the concert of the French state and the Duval family is indeed done by the French state, which means that—
64%, Simon?
Yeah, exactly. It's 64% of the capital increase, plus the fact that they buy back the rights of the Duval family in order to do that.
We will access the market on the same share of what the free float is today.
Okay. Just so that I am clear then, effectively, the French state is backstopping 64%. If I take the rest, is anybody underwriting that, or is that just on a best efforts basis?
Well, technically, the French state is not backstopping as the usual backstop, which is more of a guarantee. They are actually doing the investment for their share and the family's share. So, they are doing the actual subscription, not only the backstop. For the remaining share, we will look to have an underwriting from the bank syndicate, which we do not anticipate any difficulties considering that, with the Duval family and state share already subscribed, the amount to be subscribed from the market remains limited. We have confidence that the bank syndicate can underwrite that portion.
They will buy proactively, or the rights of the Duval family. So those rights will not be on the market. It is not really a backstop. There is an agreement to buy the rights of the Duval family and exercise these rights to participate in the capital increase, instead of the Duval family.
Okay. Is there any chance that the French state gets involved in any of the other PSRs, or is it just the Duval family PSRs, and the rest will be taken care of by the underwriters?
The rest will be taken care of by the underwriters. The French state, I think, will already have quite enough PSRs at that point. As I mentioned, they need to make sure that they do not have more than 49% of voting rights after that transaction, after the rights issue. So they are in the spirit of buying the maximum from the Duval family and probably all of it, again, depending on the actual terms of the transaction. They will not be looking to buy more on the market. The spirit of the agreement is not for the French state, is not looking to have the maximum equity in Eramet. The French state is looking first to make sure that we can execute rapidly and in a fully de-risked way this capital increase.
This is the first reason, and the second reason is it is a strategic investment in a strategic company. But they do not need to increase their stake more than what we have announced for this to be a strategic investment.
They have committed not to cross the 50% of Eramet shareholder. So they do not want to become the majority shareholder of Eramet.
Okay. Look, one last one if I could, and again, I think I know the answer, but I just want to make sure. The PSRs, the preferential subscription rights, will be distributed to all shareholders pro rata. To the extent that someone's a shareholder in Eramet today, they get pro rata access to these PSRs. Is that correct?
That's correct. Yes.
Yeah.
Okay. It's full pre-emption. It's full standard pre-emption. There's no funnies here. Yeah.
We may have new investors buying the rights from the investors willing to sell those rights. We do expect, as in any rights issue, to have new investors that come in Eramet at that time. But indeed, that would be on the free float share, because the part of the state and the Duval family will already be taken care of.
Okay. Lastly, just to confirm the timing. After Q3 results, before the end of the calendar year?
Yeah.
Exactly. Yes.
Okay. Thank you very much. Sorry, I've been a bit greedy on the questions, but thank you.
Thank you.
The next question is from Maxime Kogge of ODDO.
Good evening, Christel and Simon. Thanks for this call. The first question is, why are you ruling out that the French state exceeds the 49% threshold? Is it because if it exceeds this threshold, it will then have to launch a mandatory tender offer on the whole capital? Is that a scenario that is totally ruled out at this stage?
No. It's a commitment they have made, not to the Duval family and the company, and they don't want to "nationalize," quote unquote, Eramet.
On this point, if their voting rights was above 49%, they could need some regulatory approval. Remaining below 49% means that there is nothing, we can execute the transaction rapidly without obtaining any regulatory approval, except one, which is the French state will cross the 30% threshold, which means that they will need a waiver not to launch a mandatory tender offer. A waiver that they seek to obtain from the French market authority, and on which there is a high level of confidence that this waiver will be obtained. Because as Christel said, the goal of the state is not to do a mandatory takeover of the company. It is to do a strategic investment and make sure that the company can do its rights issue and move forward with the execution of its funding plan.
This is the spirit in which this agreement has been done, which is not the idea of not being a takeover of the company.
But there are in fact two steps with 49% of the effective voting rights for the first transaction. Then they want to not exceed 50% of the company's share capital, even when they have obtained all the authorizations. You will see that in the communique, and sorry, it is a bit technical, and we would have preferred to have sent you the communique in advance. But, as you will see in the communique, there is a quote of the minister, and this quote was late.
Okay. That is clear. Second question is, are you still on track to announce some asset disposals by the end of the year, as was initially committed? Are you having talks actually with some investors who would both invest in the capital increase and in a subsidiary? Can such deals be combined or are they really being executed each on their own?
We are still on track on the asset disposal, which is part of our funding plan. We will not rush in anything. As we have done since the announcements we have made, we have been reviewing our options. We have been progressing on many different options to make sure that, whatever happens, we always have executable options on our side. We do not want to rush anything, so we will try to announce as early as possible. But in any case, even though if we can get a signing of a deal this year, the closing will happen only next year. But yes, we still have the goal in mind. And the rights issue does not change that.
It just reinforces us in the desire not to do any type of fire sale and to make sure that when we divest a share of an asset, it is for the right strategic reasons and for the right value. So we are still pursuing that. With regards to your second question on the two investments, one at asset level and one at the top level, it is theoretically possible, but now that we have an actual investment secured by the French state covering for both reference shareholders, we expect that the remaining share of investors will not become investors, but they will be institutional and regular institutional investors that will come in Eramet, either existing or new ones. And those investors usually are not the ones that have been approached to participate into asset level type transaction where it is more strategic investors.
All right. No, thank you. That is very clear.
The next question is a follow-up from Jason Fairclough of Bank of America.
Hi, folks. Sorry, just to come back in here. I wanted to make sure I understood the thinking around the Duval family and making sure that the French state doesn't go through 48%. I guess the question here is: How do we think about the discount that you're going to put on these rights? Because I guess if I think about it super simplistically, if we did an equity raise at market, then basically you're not going to be anywhere near the 50%. So you must be putting quite a big discount on this. I'm thinking about that combined with the theoretical ex-rights price. I guess my question is: Is money going to flow to the Duval family through the course of this?
Yes.
Yeah.
You're right. There's no assumption of a big discount of any kind. The reason why the French state will increase in their shareholding, both in terms of share capital and in terms of voting rights, is because the French state is buying the full amount of shares of the family.
Then is exercising those rights and subscribing to the capital increase. So what we're saying here is two transactions. It's a subscription by the French state for 2/3 of the EUR 500 million, plus buying the shares, a secondary transaction between the French state and the Duval family on the rights. If you combine those two transactions, this means that the French state is increasing its share in the capital more strongly than maybe the back of the envelope calculations that you've made. It means that the Duval family are also decreasing more than the mechanical dilution, which would happen from a tail swallowing.
Mm-hmm. But again—
This is regardless of the value. Actually, the price at which the French state is buying the rights from the family is the theoretical value minus 5%. The transaction between them is done at that level, and we are not assuming to reach the conclusion that we were given. We do not need to assume much more, with regular discount to TERP, we get to the conclusion that the state would increase quite substantially its share in Eramet as a result, while staying below 50%.
Okay. Just so that I am really clear on this, so EUR 500 million is going to flow to Eramet as a result of this transaction. Is that right?
Right.
Do you have an idea how much money is going to flow from the French state to the Duval family as a result of this? Or does that depend on the structure of the deal?
The structure is that one, but it depends on a few items. As the French state will buy all or almost all the, let us say for simplicity, they buy all of the rights of the Duval family, it will be done at the theoretical value of rights minus 5%. The theoretical value of rights will be determined on the date prior to the launch, once we have the final terms of the rights issue. But using the usual assumption for such an issue, it is quite easy to infer the type, the magnitude of the transaction, but we cannot give a precise figure because it depends on what is their share price, what is the discount to TERP on the day we launch it. So anyone can have a view, but it is a sizable transaction.
Okay. All right, well, look, interesting. Thanks very much for the color again. Bye-bye.
For any further questions, please press star and one on your touch-tone telephone. Ms. Bories, at this time, there are no questions. Excuse me, there actually is, I apologize. The next question is a follow-up from Maxime Kogge of ODDO .
Yeah. I was just wondering whether both the French state and the Duval family would have a commitment to maintain the stake at the current level, I mean the level pro forma, the capital increase for a certain period of time to avoid some fallback on the market.
Well, they would have a shareholder agreement between themselves. The shareholder agreement typically includes some liquidity provisions, as they usually do, to prevent excessive selling in the market. So there is a lock-up period. So there is a lock-up that happens in any case as part of the rights issue, but on top of that, the shareholder agreement usually has that type of provision. So you would not have a lot of shares going to the market on the day after the transaction, if that's your question. But if in the future, the French state wants to bring a partner in the company, then they can, if they want sell to a strategic investor or do up or reduce their stake in the company, that's their decision in the future.
But in the shareholder agreement they have between them, does not allow to dump shares on the market, after the transaction or at any point in time in the future.
Okay. Considering the new commitment to not exceed one time of net leverage, at least not to pay any dividends until this threshold has been reached. I guess this puts us in a very long timeframe now when you can resume dividend payments because, we'll still be highly levered following the capital increase. Plus, you will continue investing a lot, notably in lithium in Argentina. So probably shareholders won't see any dividend flowing before, yeah, 2030 or even afterwards. So that changes the profile of the company as well now.
No, that's not our view. The goal, so our policy right now is to prioritize de-leveraging. So we're focused on bringing that leverage below one. The capital increase makes us do a good huge step in that direction. Then we are looking at asset monetization with the idea of also improving the leverage, by doing this. So our goal is to bring the leverage in that range at the most rapidly, and well below 2030. And to be in a position, actually to resume our dividends much earlier than that, even though we invest in Argentina. And with an investment in Argentina has not been taken yet, as you know, we announced a few days ago that we applied for the RIGI in Argentina. But the final investment decision will be taken next year.
And if this decision is positive, that will be CapEx, that will happen in 2028, 2029, 2030. Our goal is to have brought the company and the leverage of the company below one before that, so that we're not in the case that you mentioned.
All right.
This first step, as you know, in the debottlenecking of our plant in Centenario is around $ 350 million. It's not such a big one versus the initial count.
That was the last question. May I turn it over to you for any closing remarks?
Thank you. Thank you for being tonight with us. There will be a replay of the webcast available on our website. As always, if you have any questions, feel free to reach out to the IR team. Thank you to Christel and to Simon, and looking forward to talking to you all soon. Thanks so much.
Thank you all.
Thank you.