Analysis & Comment

German utility EWE to offer minority stake next month: sources

FRANKFURT (Reuters) – German regional utility EWE [LANDWE.UL] will offer investors a minority stake next month, three people familiar with the matter said, in a deal that could value the whole group at up to 6.2 billion euros ($7.2 billion).

After advertising the offer of the 26 percent stake, probably in late February, prospective buyers would have four weeks to indicate their interest, one of the people said.

EWE, which also has a telecoms business, has said it wants to find a new strategic partner in 2019 to raise fresh funds for investments, including building glass-fiber networks with Deutsche Telekom (DTEGn.DE).

Potential buyers included a group made up of infrastructure investor Macquarie (MQG.AX) and German insurer Allianz (ALVG.DE), the people said, as well as Canadian pension fund OMERS, Australian infrastructure fund IFM and Dutch pension fund PGGM.

Chinese firms might also show interest, one of the sources said, adding that they might channel any investment through a Western infrastructure fund rather than directly taking part in the auction due to Germany’s opposition to Chinese suitors.

Germany tightened rules last year to fend off unwanted takeovers by Chinese investors in strategic assets.

EWE’s 26 percent stake would be worth about 1.5 billion to 1.6 billion euros, the sources said, a value that would likely make it one of the biggest German utility deals in 2019.

Due to the size of the stake and limited influence that comes with it, the most likely bidders will be pension and infrastructure funds, which target low but stable returns.

“IRR (internal rate of return) expectations of some bidders are below 7 percent”, one of the sources said.

“EWE has a stable and defensive model,” another source said, adding any investor would need to be comfortable with EWE’s regional ownership and its long-term decision-making process.

Most of unlisted EWE, which has annual sales of 8.25 billion euros and an operating margin of 6.1 percent, is owned by cities and municipalities in northwest Germany. Peer EnBW (EBKG.DE) has a 6 percent, which it will relinquish as part of the 26 percent stake sale.

A spokesman for EWE said the sale has been agreed by the firm’s management, supervisory board and municipal owners. The transaction adviser was Citibank Group (C.N), he said.

Allianz, OMERS and PGGM declined to comment. IFM and Macquarie were not immediately available for comment.

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