At the beginning of 2007, Spain’s largest energy and gas provider Endesa was the darling of Europe’s energy market.
E.ON and Enel, Germany's and Italy's largest energy companies, fought a bitter takeover battle for Endesa, pushing bids to more than €40 billion ($49.8 billion). The competition finally ended with a compromise: Enel CEO Fulvio Conti secured the majority together with a Spanish partner. E.ON received a share of the activities in Spain in addition to power plants in Italy and France as a consolation prize that still cost it €11.5 billion.
How times change. These days, involvement in the Spanish market no longer brings pleasure to either Enel or E.ON. The Italians announced a few days ago that they would be selling up to 22 percent of their Endesa shares on the stock exchange. They are only worth €3 billion now, but Enel desperately needs to reduce its debt.
E.ON had to adjust the value for its Endesa units downward several times to €6.5 billion, or about 60 percent of the sale price.
And E.ON wants to pull completely out of Spain. CEO Johannes Teyssen put the subsidiary up for sale months ago, and now appears to have found a buyer. Handelsblatt has learned from sources in the industry that the Australian investment bank Macquarie is close to signing a deal that would mean E.ON might pocket at least €2 billion. The company declined to comment.
E.ON has power plants in Spain with an output of 3.2 gigawatts, which corresponds to about three nuclear reactors. The subsidiary, which has 1,200 employees, generates electricity with renewable energy in a volume of 1.1 gigawatts. It provides electricity directly to 680,000 customers, but that makes it a relatively small provider. Macquarie bought E.ON’s gas network in Germany two years ago.
The energy company is also making progress in selling its assets in Italy.
This firesale shows that Mr. Teyssen is putting an end to his predecessor’s expansion into southern Europe. Hopes of above-average growth rates never materialized. Spain and Italy were especially hard hit by the euro zone’s economic crisis. The demand for electricity declined and the power plants ran at under capacity. Internally, there were complaints that the company had bought outdated technology.
E.ON had to adjust the value for its units in Spain, Italy and France downward several times. In total, the write-downs amounted to €6.5 billion, or about 60 percent of the sale price.
E.ON’s business in Italy could be disassembled and sold to several investors. Reuters News Agency has reported that Enel, the regional provider Hera and a smaller gas and power provider Gala have made binding bids for E.ON’s client portfolio in the country. The French energy giant EDF is reportedly considering making a non-binding offer through its Italian subsidiary Edison outside of the official bidding process. The energy company Erg and the infrastructure fund F2i made offers for the renewable energy business. The investment fund Brookfields reportedly has also shown interest.
With a generation capacity 6.1 gigawatts, E.ON Italia is one of the top five power producers in the country. Along with coal, gas and oil plants, it also has hydro, wind and solar power plants. The unit supplies around one million people with power and has 1,000 employees.
E.ON could use the proceeds from the sale of its holdings in Spain and Italy to reduce its pile of debt, which at the end of the third quarter totaled €31 billion. With profits from nuclear energy dropping, rating agencies are taking a hard look at the debt. The company can ill afford another downgrade by the agencies.
At the same time, Mr. Teyssen wants to have cash to make investments in potential growth areas. The company plans to put more money into renewables and grow beyond Europe’s borders.
But it’s not just southern Europe causing problems for E.ON. Mr. Teyssen has also been unsuccessful with his expansion into Brazil and Turkey.
In South America, Mr. Teyssen joined up with the wrong partner, the billionaire Eike Batista, and had to inject a lot of money into their joint venture. In Turkey, E.ON battled “high financing costs, low generation volumes from hydropower and high costs for energy procurement” at its join venture with Sabanci, according to a company report.
The difficulties haven’t gone without impact: In the first nine months of the year, the projects in Brazil and Turkey caused a loss of €60 million.
Jürgen Flauger covers the energy sector for Handelsblatt. To contact the author: [email protected]