January 12, 2009 / 2:05 PM / 9 years ago

RWE to buy Essent for $11 billion

FRANKFURT/LONDON (Reuters) - Germany’s RWE, Europe’s fifth-largest utility, is to buy Dutch peer Essent’s production and delivery assets for an agreed 8.2 billion euros ($11 billion), to expand its gas and renewable energy operations.

<p>RWE Chief Executive Juergen Grossmann (L) and Essent Chief Executive Michiel Boersma are seen during a news conference in Arnhem January 12, 2009. Germany's RWE, Europe's fifth-largest utility, said on Monday it has agreed to buy the production and delivery assets of Dutch peer Essent for an enterprise value of 9.3 billion euros ($12.46 billion). REUTERS/ Michael Kooren</p>

RWE’s biggest acquisition ever and the second biggest takeover worldwide so far this year gives the utility a foothold in an area just across the Dutch border from its base in northern Germany, it said on Monday.

RWE, which forecast annual synergies of 100 million euros by 2014, said it would use a new 9 billion euro credit facility and existing cash balances to fund the deal, the latest major acquisition by a big European utility outside its home market.

France’s Electricite de France and Germany’s E.ON have bought companies in large markets such as Spain, Italy and Britain.

“It’s strategically an excellent move but financially more expensive than expected,” Sal Oppenheim analyst Matthias Heck said, adding: “They have obviously overpaid for the deal to achieve their strategic target.”

RWE is paying 9.6 times estimated 2009 earnings before interest, taxes, depreciation and amortization for Essent, which is owned by six Dutch provinces and about 140 municipalities.

In 2008, the Dutch utility generated EBITDA of 882 million euros on sales of 6.55 billion euros, RWE said.

Two sources in the finance industry with knowledge of the matter had told Reuters earlier on Monday that the two companies had agreed on the transaction.

It is the biggest strategic step so far by chief executive Juergen Grossmann, hired in 2007 to expand the company more aggressively.


“Investors should see that RWE is still alive and generating external growth in the future,” DZ Bank analyst Mario Kristl said. “We like this deal. This acquisition will help to gradually reduce the current valuation discounts for the RWE share in our opinion.”

RWE said it will take on 1.1 billion euros in debt and other adjustments in addition to the 8.2 billion euros it will pay and expects to complete the deal by end-September. It plans to refinance the deal by issuing bonds over the next two years.

At least 80 percent of Essent’s shareholders have to agree to the transaction and relevant anti-trust authorities have to approve it for it to be completed, RWE said.

After failing to merge with domestic peer Nuon, Essent had been seeking a partner for its production and delivery units as it saw better chances on the European energy market as part of a larger group.

RWE saw off rivals including Sweden’s Vattenfall and a consortium of Italy’s Eni and Denmark’s DONG Energy, a source familiar with the matter said. Vattenfall, concerned about maintaining its credit rating, submitted a bid substantially below RWE‘s, the source said.

RWE shares ended down 2.7 percent at 61.40 euros, more than the 1.3 percent drop in the German benchmark index DAX and the DJ Stoxx utilities index’s 1.5 percent decline.

JP Morgan and Norton Rose advised RWE, Citigroup and Freshfield Bruckhaus Deringer advised Essent, and Lazard advised Essent shareholders. Deutsche Bank advised Essent’s supervisory board.

Additional reporting by Catherine Hornby in Amsterdam; editing by Simon Jessop and Dan Lalor

Our Standards:The Thomson Reuters Trust Principles.
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