German utility RWE is to strengthen its position in north-west Europe’s energy markets through the acquisition of Dutch utility Essent for EUR9.3 billion.
The two companies have agreed terms for a deal that will see Essent become RWE’s operating company in the Netherlands and Belgium and make RWE a leading supplier of energy in the Benelux region.
The deal is one of the largest since the onset of the credit crisis, and the largest ever made by RWE. The all-cash offer must be approved by at least 80 per cent of Essent’s shareholders as well as Europe’s competition authorities.
The two companies are well-matched geographically as well as culturally, according to RWE CEO Juergen Grossmann. “Essent’s track record in the renewables and trading business, its customer service activities including branding and its expertise in the gas sector make it a perfect match for our company,” said Grossmann. “Jointly, we will strengthen our position as one of the leading energy companies in Europe.”
The takeover will enable RWE to expand its business in Benelux and is expected to generate synergies of EUR100 million/year by 2014. It will be funded by a new EUR9 billion credit facility and existing cash balances, says RWE.
The deal does not include Essent’s electricity and gas distribution networks or its waste management operations, but will enable RWE to tap Essent’s strong position in the wholesale gas market. The German utility will gain 5.3 million customers, of which 250 000 are in Belgium and 1 million in Germany.
RWE already supplies gas and electricity to 340 000 households and over 50 000 businesses in the Netherlands. It is also planning construction of a coal/biomass co-firing generation plant at Eemshaven.
The deal will also allow Essent – the Netherlands’ largest utility – to strengthen its position in Europe’s consolidating power market following a failed merger attempt with its Dutch rival Nuon. Vattenfall and a consortium of Eni and Dong Energy had also expressed interest in Essent, according to reports from Reuters.
“RWE’s financial strength as well as our scale and skills will also support Essent’s ongoing investment programme,” said Grossmann. “We see the Dutch market as key, and we will earmark investments to secure sustainable power supply for Europe by developing and further supporting the broad energy mix in the Netherlands.”
The EUR9.3 billion enterprise value includes over EUR1 billion of debt. RWE says that teaming up with Essent will present both companies with considerable opportunities.
“Essent will become RWE’s operating company in the Netherlands and Belgium and will continue as an independent entity responsible for the execution of the Group’s strategy in these markets,” said Grossmann. “We are joining forces in the renewables sector, focusing on wind and biomass, and in our efforts to develop the carbon capture and storage technology for a climate friendly and affordable future energy supply.”
On completion of the transaction, RWE will supply electricity to over 22.5 million and gas to approximately 12.5 million customers in Europe, and will have a total installed capacity of around 51 GW in the region. Essent’s generating portfolio consists of coal, nuclear, renewables and gas-fired plant, and the company also operates a strong trading business.
Essent is owned by a group of Dutch municipalities and local authorities. Its strong renewables business, experience with biomass co-firing and investment in carbon capture and storage (CCS) technology is particularly attractive for RWE, which is currently running a major investment programme aimed at low-carbon technologies.
“Combined with power station modernisation efforts in Europe, the development of its renewables business, and research into carbon capture and storage technology, RWE will reduce its average CO2 intensity through this acquisition, which is good news for climate protection,” said Grossmann. Essent’s CO2 intensity per kWh is about 40 per cent below RWE’s.