E.On Posed to Gain Majority Stake in Ruhrgas

Utility E.On AG on Wednesday notified the Federal Cartel Office in Berlin that it plans to take control of a majority stake in Rurhgas AG, Europe's largest privately owned gas supplier.

E.On said it must still acquire coalmining group RAG AG's 52% stake in holding company Bergemann GmbH, which controls 34.8% of Ruhrgas, and it said talks are ongoing. E.On is RAG's largest single shareholder with 39.2%.

RAG's second-largest shareholder is RWE, E.On's rival utility. E.On last month agreed to acquire a 23.6% stake in Bergemann from British telecommunications group Vodafone for 850 million euros.

It has now reached a deal with ThyssenKrupp AG. E.On is to take over ThyssenKrupp's 13.5% stake in Bergemann with effect from January 2002.

People close to the negotiations said the consideration for the deal has been set at 450 million euros, suggesting a full valuation of 10 billion euros for Ruhrgas. E.On also controls a 51% stake in Gelsenberg AG, which it acquired from BP in July.

Gelsenburg controls a 25.5% stake in Ruhrgas. In exchange for its stake in Gelsenberg, E.On will give BP a 51% stake in its Veba Oel/Aral petrochemicals unit at the beginning of 2002. Overall, then, even without RAG's stake in Bergemann,

E.On controls a stake of 40% in Ruhrgas. With RAG's stake in Bergemann, it can expect to raise its stake to 60%. Because of the stake's strategic value, a mark-up can be expected on the price. Experts estimate that E.On will probably have to pay around 2 billlion euros.

But a cash consideration would likely impact on the subsidy that RAG can expect from the public purse. So it's likely to insist on a payment in kind. According to speculation by people familiar with the situation, E.On will probably offer its real-estate unit Viterra AG in exchange.

But Viterra has a total value of over 4 billion euros, according to the report drawn up when E.On was formed from the merger of utilities Veba and Viag. If E.On acquires a majority in Ruhrgas, experts do not see the cartel office approving the deal unreservedly.

Ruhrgas is active purely in the importing and long-distance distribution of gas, but via its shareholdings in urban power generators, it is also active in gas retail, which has so far tended to be E.On's focus.

If the cartel office insisted on Ruhrgas's divestment of these gas retail interests as a precondition for its approval of an alliance with E.On, insiders see RWE as a likely buyer.

RWE would thus be getting its reward for not standing in the way of its fellow RAG shareholder E.On in the talks over the Bergemann stake. Meanwhile, Economics Minister Werner Müller sent out a strong signal that the German government is likely to be favorably disposed towards E.On's designs on Ruhrgas.

Speaking at a steel industry conference in Essen, he said in order to secure the country's energy supply, it was important that Germany should have strong global players in the energy market.

But the minister made it clear that the government will impose conditions on the granting of antitrust approval for BP's takeover of E.On's stake in Veba Oel/Aral (in return for Gelsenberg) as well as Shell's takeover of RWE's stake in RWE-Dea.

The approval will be granted only if the two oil multinationals agree to keep all German refineries in operation, putting their output at the disposal of the German market.