E.ON share price down, to sell its Spanish operations

Germanys biggest power utility E.ON SE has agreed to sell its Spanish operations to Australian infrastructure investor Macquarie Group and Kuwait’s sovereign-wealth fund.

Under a plan to withdraw its operations from Southern Europe’s electricity market, E.ON has agreed to sell 60% of its Spanish assets to Macquarie and 40% to Wren House Infrastructure Management, which is part of the Kuwait Investment Authority, in a deal valued at €2.5 billion.

The agreement has to approved by E.ONs supervisory board, which is set to meet on Friday. The company is also nearing a deal to sell its operation in Italy.

E.ON has been looking for a potential buyers for its assets in Italy and Spain for over a year now, with the aim to exit the Southern Europe market, after six years of slow demand and regulatory changes that crippled profits of energy companies.

In its Spanish business, which has around 1 200 employees, E.ON has built a 32 000 km power distribution network with a stand-alone value of €0.8 billion. The utility has around 4 gigawatts of conventional and renewable generation capacity and provides power and gas to about 660 000 customers in the country.

The agreement was reached after Macquarie and Wren House outbid, by several hundred million euros, rival offer from CVC Capital Partners, private-equity firm, and a joint bid from Gas Natural, a Spanish utility, and a unit of Morgan Stanley.

Macquarie plans to divide the assets into two separate companies, one consisting of regulated assets and the other of unregulated assets. The newly created companies will have individual financing. Macquarie has mentioned plans to increase its portfolio of power assets in Europe, taking advantage of guaranteed returns due to low interest rates.

Europe has been hit by an increasing amount of renewable-energy producers, which are heavily subsidized by governments in an attempt to restrain carbon-dioxide emissions. Those actions resulted in an oversupply of electricity, pushing wholesale prices down and causing conventional plants to turn unprofitable.

E.ON has been relocating resources and could use the funds received from the deal to further increase its competitive power in countries like Russia, Turkey and Brazil, where the company expects electricity demand to outgrow Europe.

E.ON SE gained 0.85% on Thursday and closed at €14.30 in Frankfurt. On Friday the stock lost 0.63% to trade at €14.21 at 11:45 GMT, marking a one-year increase of 0.32%. The company is valued at €28.60 billion. According to the Financial Times, the 28 analysts offering 12-month price targets for E.ON SE have a median target of €14.20, with a high estimate of €19.00 and a low estimate of €12.00. The median estimate represents a 0.66% decrease from the last close price of €14.30.