Reduced appetite for cross border utility deals

    The prospects for foreign ownership of domestic utilities around Europe look poor according to recent trends.

    Reuters reports that increasingly nationalistic governments are looking at such outside moves unfavourably. Hungary was one of the first European countries to turn against foreign ownership of utilities back in 2013 but there are growing signs that borders are springing up again in an industry that has struggled to make international deals pay off.

    Several European utilities were lining up to buy German utility RWE’s subsidiary Innogy) but in March RWE and domestic rival E.ON agreed to carve up the renewable energy firm themselves in an all-German deal.
    Deal handshake graphic
    Then this week, French electricity retailer Direct Energie, the biggest independent challenger to market leader EDF, went to French energy giant Total in another all-domestic deal.

    The news agency quotes bankers as saying the Innogy deal was partly aimed at keeping Innogy’s prized assets out of foreign hands and the backlash against foreign owners is now fuelling speculation some big cross-border deals may be unwound.

    EDF’s Italian energy subsidiary Edison, the third-biggest power producer in Italy, is seen as a prime example of a legacy cross-border investment ripe for unwinding.

    Edison’s oil and gas activities no longer fit EDF’s low-carbon strategy and its prospects of winning retail market share from Enel in which the Italian state has a 24 percent stake, look limited.

    Spain’s Endesa is another asset owned by a foreign utility seen as a potential candidate for resale. Italy’s Enel, Europe’s biggest utility, outbid E.ON for Endesa in 2007 during a spate of cross-border European utility mergers.

    While Enel, which owns 70.1 percent of Endesa, has denied it has plans to sell, its control has drawn criticism from Spanish politicians who say Endesa is not investing enough locally and pays too much in dividends to its owners.

    Enel Chief Executive Francesco Starace acknowledged nationalism was having an impact on utilities M&A in Europe.

    “There is some but I don’t think Europe’s big countries can afford to be nationalistic because they would need really deep pockets to keep these companies off their markets,” he told Reuters.

    Meanwhile, within Germany, more internal mergers and acquisitions can be expected according to the CEO of Steag.

    “The energy sector is seeing the next step of consolidation,” Steag’s CEO Joachim Rumstadt said at the company’s annual press conference on Thursday, adding utilities had realised the need to focus and not cover the complete value chain.

    Innogy’s breakup, announced last month, will see RWE become Europe’s second-biggest wind power player, while E.ON turns into the continent’s largest power and gas networks group.

    Rumstadt said there were foreign utilities in Germany looking to sell their coal-fired power plants while other power firms were interested in entering the German market, not disclosing any names.

    Rumstadt also said that Steag, which is owned by seven municipalities in Germany’s industrial Ruhr heartland in North Rhine-Westphalia, as well as some of its power plants had attracted outside interest including on possible partnerships, declining to comment further.

    RWE is not in talks with Steag about its power plant assets, a spokeswoman for the group said, confirming similar remarks to newspaper Rheinische Post.



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