RWE has agreed to buy most of Essent, the Dutch power company, for €9.3bn ($12.4bn), in one of the biggest deals since the onset of the credit crisis.
Juergen Grossmann, RWE chief executive, described the Essent deal – his first major transaction since he took over in October 2007 – as the “perfect match”.
The deal would help the German utility extend its franchise in north-western Europe and deliver about €100m in annual synergies by 2014. The all-cash deal also will enable RWE to tap Essent’s strong position in the wholesale gas market as well as the retail power sector in the Netherlands and Belgium.
However, RWE will not try to acquire Essent’s waste management business, nor its electricity and gas distribution networks, which are run as a separate operation in accordance with a new Dutch law on energy “unbundling”. Analysts also said RWE could be forced to divest some of Essent’s German assets to avoid competition issues.
The €9.3bn enterprise value includes over €1bn of net debt and represents a multiple of 9.6 times estimated 2009 earnings before interest, tax, depreciation and amortisation.
Essent, the Netherland’s biggest utility, has been looking for a partner since last June in an effort to strengthen its own position in Europe and after a €24bn merger between it and rival Dutch group Nuon collapsed. Essent had turnover of €7.4bn in 2007, about one-fifth of RWE.
If completed, the takeover may come as a relief for Mr Grossmann, who has been under pressure to pull off a major transaction. Last year he lost out to EDF of France in the race to acquire British Energy, the nuclear generator. RWE also pulled out of a bid to acquire Russian utility TGK-2.
RWE will finance its purchase through a €9bn credit facility, provided by a group of 10 banks.
Essent, owned by Dutch municipalities and local authorities, has promised not to support an alternative buyer on pain of a “considerable break fee”.
The deal is conditional on 80 per cent of the issued and outstanding share capital being tendered and is expected to close in the third quarter of 2009.
JPMorgan acted as financial adviser to RWE, Citi to Essent and Lazard to Essent’s shareholders. Deutsche Bank advised Essent’s Supervisory Board.
RWE shares fell 2.7 per cent to €61.50.