Romanian fund’s manager takes on German group E.On in corporate governance dispute

Romanian investment fund Fondul Proprietatea’s (FP) manager has started a battle with German group E.On on corporate governance issues. American group Franklin Templeton, which has been managing FP since September 2010, alleged that some of E.On Romania’s consultancy contracts with its local subsidiaries, in recent years, have been unjustified. E.On Romania's representatives rejected the allegations. It is for the first time that Franklin Templeton publicly takes on a big multinational company on corporate governance issues, acting as manager of Fondul Proprietatea. Up until now, Fondul Proprietatea’s manager has been battling with the Romanian state to enforce corporate governance principles in state-owned enterprises in which the fund is a minority shareholder. Fondul Proprietatea is a minority shareholder in gas and power distribution company E.On Distributie Romania, with an 18% stake, and in gas and power supplies E.On Energie Romania, with a 13% stake. German utilities group E.On controls both companies, via E.On Romania. “Fondul Proprietatea considers that the service agreements entered into by the companies with the majority shareholder E.ON Romania SRL are unnecessary and the price paid by the companies to E.ON Romania SRL for the strategic consultancy services is unjustified,” reads a statement issued by Franklin Templeton. According to the fund’s data, in 2014, the total value of these service agreements related to strategic and management consultancy amounted to an estimated EUR 7.7 million. “The Fund considers that the conclusion of such related parties transactions named business strategy consultancy services agreements with the majority shareholder are neither necessary nor appropriate, given that the Companies have their own board of directors and managers, which are expected to take strategic and management decisions and act for the benefit of all shareholders and not the benefit of the majority shareholder,” said Franklin Templeton. Fondul Proprietatea’s manager also said that such strategic consultancy services agreements can be considered an abuse of power by the majority shareholder, E.ON Romania SRL. “The Fund considers that this situation represents a conflict of interest and a serious breach of corporate governance principles and strongly urges the management of E.ON Romania SRL in Romania to review the opportunity of terminating such agreements and not conclude any similar agreements with the companies in future,” Franklin Templeton concluded. Fondul Proprietatea has also asked for the initiation of court actions against the board members and managers of E.ON Distributie Romania, E.ON Moldova Distributie and E.ON Energie Romania for the recovery of damages caused to these companies by approving, concluding and performing service agreements with E.ON Romania. E.On Romania’s representatives denied Fondul Proprietatea’s allegations and said that all management contracts were legal and met market conditions, certified by independent international experts. “E.On Romania elaborates group strategies and policies which target maximizing the investment potential, as well as the development of strategic projects and new business projects, the improvement of the service portfolio for our clients, the efficient management of all E.On companies’ resources and the continuous improvement of safety and environment standards, to the benefit of all E.On clients in Romania and shareholders, including the Romanian state and Fondul Proprietatea,” E.On Romania said in a statement. They added that E.On Romania SRL is registered locally and pays taxes to the Romanian state. E.On Distributie Romania owns the gas distribution network in the northern half of Romania and the power distribution system in the Moldova region. E.On Energie Romania is the biggest gas and power supplier in these regions.