May 15, 2008 / 3:36 PM / 10 years ago

UPDATE 1-Russia IES buys TGK-7, to give control to Gazprom

(Writes through with official denial, details, background)

MOSCOW, May 15 (Reuters) - The investment vehicle of billionaire Viktor Vekselberg bought control of power firm TGK-7 VTGK.MM on Thursday, but a source close to the deal said it will transfer control to Gazprom (GAZP.MM) this autumn.

Russia’s former electricity monopoly Unified Energy System (UES) EESR.MM said it had sold a 32 percent stake of TGK-7 VTGK.MM for 2.848 roubles per share or 27.5 billion roubles ($1.152 billion) to a unit of investment vehicle Integrated Energy Systems (IES).

Under Russian corporate law, the purchase of a stake larger than 30 percent would oblige IES to make a buyout offer to TGK-7 shareholders at the same price as the acquisition.

IES, also known by its Russian acronym KES, already owns just under 30 percent of TGK-7, meaning that the acquisition of the further stake will give it control.

IES spokeswoman Nadezhda Rukina said that negotiations with Gazprom over TGK-7 were still ongoing.

“No deal has yet been struck,” she said.

But a source familiar with the negotiations told Reuters on Thursday that IES and Gazprom were forming a holding company into which IES would transfer its controlling stake in TGK-7.

This autumn, Gazprom will get majority control of that holding company, the source said.

State-controlled UES is selling TGK-7, along with 19 other major power generating firms, as part of a sweeping reform of the sector that will see the Soviet-era monopoly dismantled and mostly privatised by July 1.

Gazprom and IES have emerged as the two main players in the liberalised power sector, separately acquiring some of the choicest UES assets and threatening to dominate the sector.

This would be the first time they jointly make a power acquisition.

Gazprom has secured effective control of four of the 20 large power producers, including the main suppliers of electricity to Moscow and St. Petersburg.

TGK-7 will be the fourth power generator IES controls, while all of the other strategic investors acquiring UES subsidiaries have each gained control of only one firm so far. (Reporting by Olga Popova, Writing by Simon Shuster; editing by Elaine Hardcastle)

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