E.On to Sell Spanish Assets

By Christopher Bjork in Madrid and Shayndi Raice in London 

German power utility E.ON SE has agreed to sell its Spanish assets to Australia's Macquarie Group and Kuwait's sovereign-wealth fund in a deal worth EUR2.5 billion ($3.1 billion), according to people familiar with the matter.

E.ON's supervisory board is set to meet Friday to approve the deal, the people said.

The sale is part of an orderly but costly retreat by the German utility giant from Southern Europe's electricity market, hard hit by a six-year economic downturn and sweeping regulatory changes that lowered the profitability of energy firms in Spain. E.ON is also in the final stage of selling its assets in Italy.

Under terms of the deal, Macquarie will provide 60% of the equity and Wren House Infrastructure Management, a unit of the Kuwait Investment Authority, will put up the remaining 40%, the people said.

Once acquired, Macquarie plans to split the assets into two companies, one comprising its regulated assets and the other its unregulated assets. Each will have independent financing, the people said.

The agreement followed exclusive talks between Macquarie and Wren House. The winning bid was several hundred million euros above a rival offer by private-equity firm CVC Capital Partners and a joint bit by Gas Natural SDG SA and a unit of Morgan Stanley, one of the people said.

Germany's biggest power company could use the proceeds from the sale to reduce its EUR31 billion debt. It is also shifting resources to markets such as Russia, Turkey and Brazil, in a bet that electricity demand will grow faster there than in Europe.

Utilities in Europe have been squeezed by a surge in renewable energy generation, which governments have heavily subsidized in the hope of curbing carbon-dioxide emissions. The resulting oversupply of electricity depressed wholesale prices, rendering power generation from conventional plants unprofitable.

In 2007, E.ON paid EUR11.5 billion for power plants and energy distribution assets in Spain, Italy and France, and has since written down the value of these assets by EUR1.5 billion. At the price paid by Macquarie and Wren House, which includes debt, E.ON would likely have to assume an additional charge.

Hendrik Varnholt in Frankfurt contributed to this article.

Write to Christopher Bjork at [e-mail] and Shayndi Raice at [e-mail]

Access Investor Kit for Macquarie Group Ltd.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=AU000000MQG1

Access Investor Kit for E.ON SE

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=DE000ENAG999

Access Investor Kit for E.ON SE

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US2687801033

Access Investor Kit for Macquarie Group Ltd.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US55607P2048

Subscribe to WSJ: http://online.wsj.com?mod=djnwires