E.ON and Verbund Agree on Asset Swap

on Dec 4, 2012

On 4 December 2012, Germany’s largest utility company E.ON (PINK:EONGY) announced that it had agreed on an asset swap with Austria’s biggest utility, Verbund AG (PINK:OEZVY). The swap will see E.ON owning 50 percent in EnerjiSA, Turkey’s second biggest non-state energy producer, and is in line with the German utility’s plans for expansion into growing markets such as Turkey and Brazil to counter weakening electricity demand in Europe.

**E.ON and Verbund Swapping Assets**
As announced in E.ON’s press release, the German utility will acquire Verbund’s share of the Turkish EnerjiSA, giving it stakes in EnerjiSA’s power generation capacity and projects and power distribution business in Turkey. The swap will see E.ON entering into a joint venture with the Turkish financial conglomerate Sabanci Holdings, majority owned by the Sabanci family, which holds the remaining 50 percent of EnerjiSA.

In exchange for its stake in EnerjiSA, the Vienna-based Verbund will acquire E.ON’s interest in eight run-of-river power plants in Germany, predominantly on the Inn River in Bavaria, in which the Austrian utility is already a joint owner. Following the transaction, expected to close in the first quarter of 2013 and subject to regulatory approval including authorisation under anti-trust law, Verbund will own 100 percent of the assets.

**E.ON Expanding in Turkey**
E.ON which in November revised its 2013 outlook on account of weakening energy demand in Europe aims at a 10-percent share of Turkey’s power generation market. “Following our entry into Brazil at the start of the year, our entry into the Turkish energy market represents significant progress in the implementation of our corporate strategy,” said E.ON’s CEO Johannes Teyssen in the company press release. “Turkey has one of the fastest-growing economies in the world, and the rise in its energy demand has been strong and steady. This transaction gives us a superb platform for value-enhancing growth outside our markets in Europe.”

!m[Germany’s Largest Utility Eyeing Turkey’s Energy Market](/uploads/story/956/thumbs/pic_1_inline.png)Reuters quotes BP’s (LON:BP) statistical review as indicating that total Turkish energy consumption rose by 9.2 percent to 118.8 million tonnes of oil equivalent in 2011 from 2010, the highest annual growth rate in all of Europe and Eurasia. In addition, Turkish annual power demand is currently around 210 terawatt-hours (TWh), with the government expecting demand to rise at an annual rate of 6 to 9 percent between 2009 and 2023.

As noted in E.ON’s press release, the German utility and the Turkish Sabanci aim to have up to 8,000 megawatts of generating capacity in Turkey by 2020, giving them at least a 10-percent share of Turkey’s generation market.
**Verbund’s European Focus**
And while E.ON is eying growing markets such as Turkey, Verbund is looking to reinforce its position in Europe. Bloomberg quotes Verbund’s CEO Wolfgang Anzengruber as saying in September that the utility is not a global player, and will focus on “core Europe”.
In its press release announcing the asset swap with E.ON, Verbund noted that the deal highlighted the company’s “strategy of expanding its position as a leading renewable electricity company in Europe.” Verbund however noted that while future investments would be focused on Verbund’s core markets of Austria and Germany, Italy and France were no longer considered to be strategic growth markets, whereas South-Eastern Europe presented “interesting potential” for growth in the medium term.


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