Fortum Plans $9.7 Billion Bid for EON Fossil-Fuel Arm Uniper

Finnish utility Fortum Oyj plans to offer 8.05 billion euros ($9.7 billion) for EON SE’s legacy fossil fuel and trading business, Uniper SE, as consolidation in the European power sector accelerates.

Fortum is in advanced talks to buy EON’s remaining 47 percent stake in the business, the Espoo, Finland-based company said in a statement Wednesday in response to a Bloomberg News story. Uniper rebuffed a previous Fortum proposal for an acquisition, so if Fortum reaches agreement with EON, it plans to make a takeover offer of 22 euros a share in cash to all Uniper investors, it said. The unsolicited offer “is clearly not in line with the strategy” Uniper has laid out, the targeted company said in a statement.

The proposed deal reflects the changing utility landscape in Europe, where the rise of renewable energy is making it harder to make money from traditional coal and gas plants. As EON spun off Uniper, Germany’s RWE AG sold part of its green unit Innogy SE. French utility Engie SA is halfway through a program to sell most of its conventional fuel plants to reinvest in renewables, while EDP Energias de Portugal SA is selling its Spanish gas network in a shift away from fossil fuels.

The offer represents about a 4.5 percent premium to Uniper’s Tuesday closing price. Shares of Uniper have more than doubled in the past year on speculation the company could be a takeover target. There’s no certainty the talks will result in an agreement, Fortum said. 

‘Attractive Opportunity’

“The offer would be an attractive opportunity for Uniper shareholders to capture the full value of their investment,” Fortum Chief Executive Officer Pekka Lundmark said in the statement. “Uniper shareholders could lock in the significant share price gains related to a significant degree to the prolonged takeover speculation in recent months.”

Uniper jumped 5.8 percent to 22.27 euros at 4:15 p.m. in Frankfurt, above the bid price. Fortum will stick to its offer of 22 euros, Lundmark said on a call with reporters. Fortum rose 4.1 percent to 16.88 euros, while EON gained 3.1 percent to 9.49 euros.

Uniper didn’t invite the offer from Fortum and isn’t in talks with the Finnish company or EON, Uniper said. The supervisory and management boards will evaluate any specific proposals that Uniper receives “in the interest of the company and all its stakeholders,” Uniper said.

Chief Executive Officer Klaus Schaefer said in an interview Friday that he wasn’t interested in selling the company.

“Our view is that Uniper should stay independent,” he said. “We’ve just been on the stock market for a year; anything else would be extremely strange. I think we can help ourselves quite well without having to ask anyone.”

EON could tender its stake into the tender offer in early 2018, according to Fortum’s statement. The offer won’t be subject to any minimum acceptance threshold. Fortum doesn’t plan to implement forced job reductions as a result of the transaction and aims to keep Uniper’s headquarters in Dusseldorf, it said.

‘Constructive’ Partner

Fortum is focused on acquiring the EON stake and isn’t trying to buy all of Uniper, Lundmark said on a call with reporters. The Finnish company wants Uniper management to remain in place, he said. Since Uniper wants to remain independent, “Fortum would focus on being an active, supportive and reliable shareholder of Uniper” and a “constructive strategic partner,” the Finnish company said in its statement.

EON, Germany’s largest renewable energy producer, floated a 53 percent stake in Uniper in September last year in response to Germany’s shift to solar and wind power from nuclear and fossil fuels. Chief Financial Officer Marc Spieker has said the company will dispose of its remaining Uniper stake as soon as a tax restriction is lifted at the end of this year.

A full takeover of Uniper would be the largest European deal in the industry since Engie’s purchase of the rest of International Power for $10.2 billion in 2012, according to data compiled by Bloomberg.

Fortum, Finland’s biggest power company, has spent about half of the 9 billion euros raised from the sale of its Nordic electricity-distribution grids two years ago, Chief Executive Officer Pekka Lundmark said in April. The company, which is valued at about 15.1 billion euros and has the Finnish government as its majority owner, is focusing on finding ways to generate shareholder return from its remaining cash pile, he said.

Uniper’s assets include hydroelectric and coal- and gas-fired plants, as well as stakes in gas pipelines and nuclear power sites. EON focuses on renewables, networks and retail consumers. Fortum may prefer certain businesses and could always sell some of its holdings later, people familiar with the matter have previously said.

Strategic Rationale

Fortum’s overall plan has been to invest in clean energy, so the deal doesn’t fit with that strategy, Ahmed Farman, an analyst at Jefferies International Ltd. in London, wrote in a report.

“The strategic rationale of a potential Uniper acquisition by Fortum isn’t obvious to us,” Farman wrote. “We also think that the timing of such a potential deal remains uncertain given the regulatory and tax issues that E.ON has highlighted in the past.”

EON sold 1.35 billion euros of new stock in March and has said it may also offer hybrid bonds to reach its target of raising 2 billion euros in fresh money. The proceeds will help fund cleanup of nuclear power plants as Germany moves to phase them out by 2022.

EON is clarifying certain issues with the authorities in relation to its discussions with Fortum, according to Fortum’s statement. Fortum is being advised by Barclays Plc and Perella Weinberg Partners LP, while EON is with Goldman Sachs Group Inc.

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