FRANKFURT: Shares in troubled utility RWE rose after it reached a deal to sell its oil and gas production arm to investors led by Russian tycoon Mikhail Fridman for €5.1bn ($7.10bn), a high price but the group will lose one of its main profit drivers.
“Good news that RWE has finally sold DEA at a higher price than we and consensus were expecting,” Santander analyst Oscar Najar Rios said in a note, adding the group should now focus on cost cutting and lowering its €30.7bn debt pile.
Sources previously said that indicative bids came in a range of €3.5bn-€5bn, with Fridman making the highest offer.
The transaction is raising eyebrows at a time when East-West relations have deteriorated over an ongoing crisis in Ukraine’s Crimea region, putting Russia at odds with the United States and Europe. Some analysts also argue that DEA was an important part of RWE, which is suffering from an industry crisis caused by a rise in renewable energy sources, forcing it to book its first net loss since 1949 earlier this month. “We frequently criticised the transaction in general as it takes away one of the few future growth drivers of the company,” said Equinet analyst Michael Schaefer.
DEA, which accounted for about 9 percent of RWE’s operating profit in 2013, employs about 1,400 staff and owns stakes in about 190 oil and gas licences or concessions in Europe, the Middle East and North Africa, some of which do not produce and are in need of large investments.
The deal values DEA at about 5.4 times EBITDA, including assumed debt, a discount to the 6.3 times average for the European oil and gas exploration and production sector, according to StarMine. The transaction is not expected to face regulatory hurdles, to be obtained in all 14 countries DEA is active in, and RWE on Sunday said it had informed the Germany government about the transaction and received no indication that it would be opposed to the deal.
A spokeswoman for Germany’s Economy Ministry said Europe’s biggest economy was not worried that the deal would be a threat to natural gas supplies. Fridman was one of the “group of seven” businessmen who funded former Russian President Boris Yeltsin’s re-election bid in 1996. Reuters
