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Vattenfall to buy Nuon unit for $13.3 billion

  Swedish energy group Vattenfall said Monday it will buy the production and supply arm of Dutch utility Nuon for €10.3 billion ($13.3 billion), creating Europe’s largest producer of offshore wind power.

Vattenfall’s biggest-ever acquisition, which will start with a 49% stake sale, comes six weeks after the Nordic power giant lost out in the race to acquire Nuon’s domestic rival Essent. The deal hands the Swedish state-owned utility operational control of Nuon straight away but the full takeover is staggered over six years, in order to reassure Nuon’s shareholder base of Dutch regional authorities and municipalities.

“Vattenfall has been looking for an acquisition for some time, and this makes strategic sense,” analysts at CreditSights wrote in a note to clients. They said the deal would allow Vattenfall to keep its solid credit ratings.

Vattenfall said the all-cash offer gave Nuon’s production and supply company an enterprise value of €8.5 billion, or an equity value of €10.3 after 2008 dividends. Vattenfall CEO Lars Josefsson told a news conference that Nuon’s “positive cash” position explained the €1.8 billion difference in valuations.

The Nuon deal, and the purchase by Germany’s RWE of Essent’s production and delivery assets for €8.2 billion, stem from a Dutch legal requirement that the utilities split their regulated and unregulated businesses before 2011.

Nuon’s sale was structured to satisfy shareholders seeking the high valuation that comes with offering control to a buyer but who in some cases were reluctant to sell out overnight.

With few merger opportunities in Europe’s rather consolidated utilities sector, both have drawn interest despite gloom elsewhere in the mergers and acquisitions market. As well as RWE, Vattenfall’s Danish rival DONG Energy, and Italy’s ENI had also been among the potential buyers of Nuon, people familiar with the matter had said.

CLEAN ELECTRICITY

The Nuon deal is expected to close by the end of the second quarter of 2009, subject to approval by Nuon’s shareholders. It gives Nuon an enterprise value (EV) of 9.7 times normalized 2008 earnings before interest, tax, depreciation and amortization (EBITDA), according to a presentation on Vattenfall’s website -- broadly in line with the 9.6 times EV/EBITDA ratio RWE paid for Essent.

Vattenfall’s Josefsson said the deal “will accelerate the realization of Vattenfall’s strategy to make electricity clean,” as it planned to speed up investment in carbon capture and storage technology and wind power. The companies said investing in offshore wind will be a key priority and the group will aim to increase wind power generation to 15 terawatt hours (TWh) by 2015, a sixfold increase from 2009 levels.

Vattenfall will acquire the remaining stake in three steps, starting with a 15 percent stake in two years time, and another 15% and 21% stake each separated by two-year intervals.

LOAN FINANCING

The initial stake purchase will be funded through a €5 billion loan from nine banks and freely available cash reserves, Vattenfall said in its statement. The loans will last for a year, with an option to prolong half of them for another year. The company plans to refinance the debt in the bond market during 2009.

Nuon called off a €24 billion merger with Essent in 2007, saying conditions were not right. Nuon said in June last year that it was seeking a foreign partner, to compete more effectively against larger players in a consolidating European utilities market. Nuon originally had planned to sell only a 40% stake.

Goldman Sachs, ING and Allen & Overy advised Nuon in the deal, and RBS, Rothschild, NIBC and Linklaters advised Vattenfall. (Reuters)