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February 1, 2007 11:33 am

Dutch power groups in €24bn tie-up

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Essent and Nuon, the two largest Dutch power utilities, on Thursday announced a long-awaited merger to create a €24bn ($31bn) energy group that they said would be among the 10 biggest in Europe.

EssentNuon said the deal would create value of more than €2.8bn from annual synergies of €300m-€350m, mainly by cost savings in purchasing and IT and by eliminating duplicate functions.

Around 1,350 jobs will be lost from 20,000 in total.

The new group indicated its desire to grow further, saying it had created “a solid base for entering into partnerships with other energy companies when the time is right.”

In a statement, the companies said: “The merger will enable them to have a stronger grip on their future in the consolidating market.”

They also emphasised their intention to focus on creating and delivering renewable and clean energy, and said they would expand wholesale activities, including energy trading.

They added that the merger would have a “positive impact on prices” by strengthening purchasing power, delivering synergies and lowering costs thereby improving their competitive position in Europe.

EssentNuon will have nearly 5m customers and revenues approaching €12bn. While their prime focus is the Netherlands – where it supplies electricity, gas and heat and controls 70 per cent of the retail market – it is also active in Germany and Belgium. Essent is the larger with annual sales of €6.3bn.

The merged group will be required to divest assets to obtain anti-trust approval. The Netherlands Competition Authority (NMA) has made clear it will not approve any deal that creates a national champion.

A raft of energy companies – including Centrica of the UK, which owns Oxxio, a smaller Dutch energy group – is expected to express interest in assets that must be divested.

The companies said they would submit the merger plan to NMA “for approval at short notice”.

Shareholders, comprising Dutch provincial and municipal authorities, must also approve the plan.

Essent and Nuon said they had structured what amounted to a merger of equals, following several months of talks.

However, Essent shareholders will control 55 per cent of the new group, with 45 per cent owned by Nuon investors.

Furthermore, Michiel Boersma, Essent chairman, will become CEO of the new group with Rinse de Jong, Essent chief financial officer, reprising that role at EssentNuon.

Peter Erich is the sole Nuon management board member appointed. There is no job at the new company for Ludo van Halderen, Nuon chairman, who will remain in his post at Nuon until the deal closes.

The new company’s supervisory board will be led by Wim Meijer, Nuon supervisory board chairman, and based in Amsterdam, Nuon’s home city.

The companies said they would distribute an additional interim dividend of €600m to Essent shareholders and €300m to Nuon investors to realise a balanced starting position for the new company.

Mr Boersma said: “The merger is a logical decision since the two companies complement each other in many fields.”

Mr van Halderen added: “By growing in Europe we will be able to play a leading part in the sustainability of energy supply and ensure reliability and cost-effectiveness.”

EssentNuon said it would create a separate company within the merged entity to operate the power grid, thereby ensuring its transparency and independence in line with recent government requirements.

Essent was advised by Citigroup, Nuon by ABN Amro.

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