Fortum buys Stockholm utility for €1.5bn

Fortum and the City of Stockholm have today signed an agreement for Fortum to purchase Stockholm’s 50 per cent interest in Birka Energi AB for a total price of SEK 14.5bn (€1.5bn). The City of Stockholm retains a 50 per cent economic interest in Birka Energi’s district heating business (Birka Vàƒ¤rme).

The acquisition of Birka Energi consolidates Fortum’s position as one of the leading players in the Nordic electricity market and is a key step in its strategy to expand its core power and heat business. For the City it means executing one of the largest privatizations in Sweden of a municipality-owned company.

The transaction allows Fortum to combine its own power and heat operations with Birka Energi’s generation assets, customer base and networks and creates potential annual synergies of up to €60m by 2004. The acquisition is expected to be earnings enhancing in 2003. The strength and strategy of Fortum also enables the further development of Birka Energi to the benefit of customers, employees and owners.

“This is an important step in the Nordic strategy we are pursuing. We are delighted to be able to deliver on the strategic commitments we have made,” said Mikael Lilius, President and CEO of Fortum.

“Birka Energi is a fine company and is a perfect fit for the group. Combined with Fortum’s other operations it gives us a leading position in the Nordic market. Together Birka and Fortum will be a very competitive combination and an attractive supplier of electricity for both industrial and retail customers in the Swedish market. “

“Full retail choice for customers makes it unnecessary for the City of Stockholm to own an electricity company. Instead we can now reap the full value of a business that will continue to flourish under a dedicated industrial owner. This deal is good for the taxpayers and energy consumers of Stockholm. It limits the City’s business risks and releases capital that can be invested into the development of Stockholm and its infrastructure.” Carl Cederschiàƒ¶ld, Mayor of Stockholm, said.

By retaining a 50 per cent economic interest in Birka Vàƒ¤rme, the City of Stockholm will continue to have influence over expansion and development of the district heating business.

Fortum already owns the remaining 50 per cent in Birka Energi and expects to acquire all of the outstanding shares for a cash consideration of SEK 14.5bn. In addition Fortum will assume approximately SEK 18.6bn of net financial debt and minority interests.

Fortum is 71 per cent owned by the Finnish state but has said that it might go to the capital markets to finance future expansion. It is currently the second largest power producer in the Nordic region. Fortum is in the process of selling off non-core assets as well as holdings in Germany.

Last week Fortum reported better than expected nine-month profits of €393m due to an 11 per cent rise in power prices in the Nordic countries compared to the same period last year. Expectations for the full year are a similar level of profitability to last year.

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