Leading German electricity utility RWE has agreed to sell its RWE DEA oil and gas unit to an oil and telecoms investment vehicle led by Russian billionaire Mikhail Fridman for an enterprise value of 5.1 billion euros ($7.1 billion).
The purchase by LetterOne Holding SA is the first significant acquisition since Fridman and five partners established the vehicle with some of the $14 billion they received from the sale of a stake in TNK-BP Ltd. to OAO Rosneft.
For Essen-based RWE, the deal is a means to free itself from further investment in the exploration and production operation and raises cash to pay down 30.1 billion euros of debt. Those loans have become increasingly onerous as the company's valuation has slid almost 60% since the end of 2009.
Slumping wholesale power prices on the continent have hurt energy utilities in both Germany and France, leading to asset write-offs and sales. RWE earlier this month posted its first annual net loss in more than six decades after writing off nearly 5 billion euros in assets. France's No. 2 energy utility, GDF Suez SA, wrote off 15 billion euros of assets at the end of February.
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The agreement for DEA is at the top end of an expected price fork of between 3.5 billion euros and 5 billion euros. Luxembourg-based LetterOne submitted its offer earlier this month as part of an auction that also attracted interest from a consortium of Kohlberg Kravis Roberts & Co. and Kuwait Petroleum Corp., BASF SE's Wintershall oil and gas exploration unit and Hungarian oil and gas group MOL Hungarian Oil and Gas plc.
RWE said on Sunday, March 16, that it had agreed on the broad terms of the sale and was working to "clarify further details shortly in order to enter into the sales and purchase agreement."
The deal comes at a tense moment in German and Russian relations following Russia's decision to deploy troops in the Crimean Peninsular of Ukraine. Germany's government had led the European Union's failed effort to negotiate Russia's exit from the region, and on Monday it joined Paris and London in insisting that Russia should face economic sanctions following the Crimean parliament's decision to declare independence and apply to become part of the Russian Federation.
Germany, which is heavily dependent on Russia for natural gas supplies, had earlier resisted calls for sanctions but has changed its position in recent days. EU leaders are due to meet Monday to discuss possible measures. Germany's Bild newspaper reported March 14 that the sanctions were likely to include travel bans on Russian energy executives, including OAO Gazprom CEO Alexey Miller, and Igor Sechin, who heads Rosneft.
DEA's enterprise value of 5.1 billion euros includes about 600 million euros of liabilities that will be assumed by LetterOne. The transaction needs approval from RWE's board and regulators in several countries, said RWE.