Formation of IDGC as operating companies means new possibilities and serious potential for business cost growth. Consolidated in IDGC, DGC are attractive for the majority of investors who never thought of investing their money in the securities of regional network companies because of their small size. As a result of particular attention of investors, shareholders can count on increase of share liquidity and the company’s capitalisation.
Besides, unification of assets of several companies will allow to increase the company’s credit capacity, i.e. to involve additional financial resources at a lower cost for financing of development and modernisation programs. This, in its turn, will make possible to raise business efficiency and profitability, make it more attractive for investors. Investment appeal growth will stimulate demand, and as a result increase in share cost.
All shareholders of these companies have the voting rights - owners of placed shares of all catergories: both ordinary and preferred.
General Meetings of DGC's Shareholders will be held in the form of absent voting: shareholders will have to send filled voting bulletins concerning the GMS's agenda. The GMS is legally competent if shareholders who possess in aggregate more than half of the shares voted. Voting bulletins will be sent to DGC's shareholders not later than 20 days prior to the Meeting (under the Federal Law On Joint-Stock Companies).
Each shareholder of the reorganised company who did not take part in voting on reorganisation, has the right, voluntarily:
• To receive shares of IDGC in which corresponding DGC are consolidated (quantity of the shares received by the shareholder is defined according to conversion factors),
• To resell their shares at the price defined by DGC's Board of Directors on the basis of the independent appraiser's conclusion,
• To sell shares in the market.
According to the current legislation, the Company will repurchase shares at the price defined by the Company’s Board of Directors, but not lower than the market cost that is defined by the independent appraiser.
Share market cost is defined as at the same date on which the estimation is made to calculate exchange ratio -30 June 2007. Results of the estimation will be considered at DGC's Board of Directors' Meeting concerning convocation of DGC's General Meeting of Shareholders.
Shareholders who voted against reorganisation or did not take part in the voting are entitled to demand share repurchase. According to the Federal law On Joint-Stock Companies, shareholders have the right to demand from the Company repurchase of their shares within 45 days from the date of approval by the General Meeting of Shareholders of the resolution on reorganisation. From the moment of sending to the Company of the repurchase demand, the shareholder must not make transactions with shares. The corresponding record is made in DGC's shareholders' register. The demand form is sent to the shareholder with the Notice of the General Meeting of Shareholders. On expiry of the specified 45 days the company within next 30 days is obliged to repurchase shares from the shareholders who made the repurchase demands.
In case total cost of the Company's (DGC's) shares presented and subject to repurchase will exceed 10 % of the Company's net asset cost for the date of approval by the Company's General Meeting of Shareholders of the resolution on reorganisation, shares will be repurchased from shareholders according to the presented demands (pursuant to the requirements of item 5 section 76 of the Federal Law On Joint-Stock Companies).In this case the number of the shares that are subject to repurchase from each shareholder is defined by division of the total number of shares that may be repurchased counting the specified restriction, by total number of the shares that are presented for repurchase; the obtained figure (conversion factor) is multiplied by the number of the shares presented for repurchase by each shareholder.
The procedure of execution of the shareholders’ right to demand repurchase by the Company of the shares belonging to them is set out in section 75 and 76 of the Federal Law On Joint-Stock Companies.
The written demand of the shareholder on the repurchase of his/her shares includes the shareholder's address (if a legal person acts as a shareholder - the registered office) and the number of shares that they want to be repurchased from them. The signature of the shareholder - a physical person as well as that of his/her representative in the repurchase demand must be attested by a notary or by the holder of the Company's shareholders' register. Detailed order of execution of the shareholder's right to demand repurchase by the Company of his/her shares will be set out in the documents of DGC's General Meeting of Shareholders.
Calculations of key share conversion/repurchase indicators and conditions that will be laid before DGC's shareholders are made by the consortium of independent estimation organisations and financial advisers independently from each other. The Company's cost factors are indicators of their activity, structure and quality of assets, investment programs - data that cannot be wangled because of their publicity and availability to shareholders. Besides, the estimation results are preliminary considered by the Estimation Committee under RAO UES of Russia's Board of Directors which comprises representatives of state bodies and representatives of RAO UES of Russia's minority shareholders who are DGC's shareholders too.
Factors allow distributing DGC's shares and shareholders’ rights in united IDGC. Conversion/exchange factors are calculated on the basis of the companies' real market cost estimation counting the number of shares in DGC.
Suppose that two companies unite, the first is estimated in RUR 3 bn, the second in RUR 2 bn Thus, in the first company the total number of shares owned by shareholders equals 100 m, and in the second - 50 m
It is obvious that in the incorporated company with a cost of RUR 5 bn shareholders of the first company, considering their general "payment" to the incorporated company's capital, should receive 60 % of shares (3: 5 = 0.6), whereas shareholders of the second company - 40 %.
How to exchange in a fair proportion different number of shares owned by shareholders in the uniting companies for shares of the incorporated company if the total amount of such issued shares is for example 500 m? Such proportion is set by the conversion/exchange factors.
To provide fair distribution of shares in the ratio of 60:40, shareholders of the first company should receive 300 m shares of the consolidated company in exchange for 100 m, and shareholders of the second - 200 m in exchange for 50 m Accordingly, each shareholder of the first company should receive 3 shares of the consolidated company instead of one existing, and each shareholder of the second company - 4 shares.
Thus, fair distribution of shares in the consolidated company is delivered, reflecting "contribution" of each shareholders or group of shareholders to the consolidated business.
The main principle of use rests the same - to deliver execution of the rights and property protection of all shareholders who take part in the consolidation.
The restructuring is supported by minority shareholders, because otherwise it would be impossible to deliver such large-scale transformations. Advantages of the reorganisation are clear, they are backed by large DGC's industrial investors and shareholders and professional portfolio investors.
Many professional investors support reorganisation, and minority shareholders should consider this position at decision-making. Portfolio investors risk losing considerable funds, but "stake" on consolidation. It is obvious that their expectations have reasonable grounds.
It is impossible to discriminate economic interests and rights of small shareholders in favour of more prominent ones, as share conversion factors will be the same for all shareholders of each DGC. Shareholders' stakes in the consolidated company will depend only from conversion ratios and the number of shares belonging to this or that shareholder in DGC that are consolidated within IDGC.
Cost of IDGC's shares will correspond to the market cost of shares of each DGC as at the moment of estimation. Moreover, the growth potential of IDGC's shares will be considerably higher because the investors' expectations will grow after consolidation. Possibilities of the consolidated business and prospects of development are essential factors that will define the proportion of the market award to the received shares cost of the consolidated company.
The approaches are different in cases of share repurchase demand and conversion of DGC's shares into IDGC's shares.
Thus, pursuant to section 75 of the Federal Law On Joint-Stock Companies the list of shareholders entitled to demand share repurchase from the Company was made on the basis of data of the register of DGC's shareholders as at the date of drawing up of the list of people entitled to participate in the General Meeting of Shareholders the agenda of which includes issues on DGC's reorganisation. Accordingly, if DGC's shares were purchased after the date of the close of the EGMS register (thus the shareholder mentioned in the list), such DGC's shareholder will not be able to demand share repurchase.
As for acquisition of IDGC's shares, it is necessary to take into account that pursuant to the legislation, the share conversion date is the date of DGC and IDGC's consolidation (making a record in the uniform register of legal bodies on the termination of DGC's activity).
Thus, such a "new" shareholder is entitled to receive IDGC's shares, if at the moment of share conversion (DGC and IDGC's consolidation) he is DGC's shareholder.
Creditors will be notified on DGC's approval of resolution on reorganisation. According to the current legislation, they are entitled to demand termination or preschedule obligations execution of the reorganised company.
The given norms are provided by the Civil Code of the Russian Federation and Federal Law On Joint-Stock Companies. Pursuant to paragraph 6 of section 15 of the Federal Law On Joint-Stock Companies:
• Within 30 days from the date of resolution-making on reorganisation the Company is obliged to notify in writing its creditors and to publish data on the state registration of legal bodies, notice on the passed resolution.
• Within 30 days from the date of sending the notice or within 30 days from the date of publication of the passed resolution creditors are entitled to demand in writing preschedule termination or execution of corresponding obligations of the company and compensation of their losses.
In case DGC's Extraordinary General Meeting of Shareholders does not pass the resolution on reorganisation, all necessary actions on observance of the RF legislation requirements and possible satisfaction of creditors' requirements will be delivered. This legislation requirment is aimed to protect interests of creditors who should be able to estimate risks and either to demand preschedule execution of obligations by the borrower, or to consent that IDGC will act as the borrower instead of DGC. In case creditors do not demand preschedule execution of obligations, duties on their execution will pass from DGC to IDGC.
At the present time all DGC work with the main creditors aiming to timely inform them on the forthcoming reorganisation and to count their rights during IDGC's formation.
No, shares of consolidated companies are converted into IDGC's shares without additional payment, and the shareholders do not bear any tax obligations. Pursuant to sections 277 and 217 of the Russian Tax Code, at a company's reorganisation, irrespective of the reorganisation form, tax bearers-shareholders do not receive proceeds considered for the purpose of taxation.
Rules of defining the tax base, calculation and payment of the profits tax on operations with securities are set out in sections 214.1 of the Russian Tax Code. Operation of share repurchase are taken into account in section 214.1 and subparagraph 2 of paragraph 1 of section 228 of the Russian TC. Thus, calculation and tax payment pursuant to the specified sections are performed independently by the physical people who are citizens of the Russian Federation on the basis of the declaration submitted by them. These shareholders' incomes from share repurchase are charged with the tax rate of 13 percent (paragraph 1 of section 224 of the TC). Legal bodies who received the income from RAO UES of Russia's share repurchase execute independently income accounting payment in the budget. The tax rate is set at 24 percent (paragraph 1 of section 284 of the TC).
The amount of free float will be sufficient for performance of the requirements of the basic Russian exchange platforms: RTS and MICEX. One of the main goals of the company is to introduce its share on the specified platforms. Besides, the companies' long-term plans also include start of IDGC shares depository receipt program.
Now the necessary activities that will allow to shorten the period between termination of DGC;s share trade and start of IDGC's share trade are in the pipeline. In other words, in parallel with registration process of IDGC's additionally issued shares for the purpose of reorganisation, the necessary preparatory procedures providing the quickest introduction of IDGC's shares to the exchange trade will be performed.
At the present time it is planned that IDGC’s share circulation will begin in April-May 2008. IDGC's shares will appear in II quarter 2008 on the kerb market, after completion of DGC's joining. Listing of IDGC’s shares is planned in II quarter 2008. In III quarter 2008 start of GDR program is planned.
In this case DGC will not consolidate within IDGC, and IDGC will issue more shares. Moreover, RAO UES of Russia will exchange a package of IDGC’s shares belonging to it for supplement IDGC's shares. Thus, the holding structure in which IDGC will own the main block of DGC's shares will be established, other shares remain in the property of DGC's minority shareholders.