2nd UPDATE: E.ON To Sell Pwr Grid To TenneT For EUR1 Billion -Source

E.ON AG's (EOAN.XE, EONGY) supervisory board has approved the sale of the company's German power transmission grid to Dutch electricity network operator TenneT Holding BV for around EUR1 billion, a person familiar with the matter told Dow Jones Newswires Monday.

At a meeting earlier Monday, the German utility's supervisory board agreed to sell the around 10,700-kilometer power transmission grid as of Jan. 1, 2010, the person said.

"The price is slightly higher than EUR1 billion," the person added.

This price would be in line with recent press reports, but is considerably below analysts' estimates of the value of the grid.

Citigroup, in a research note published earlier Monday, estimated the E.ON grid to be worth around EUR1.6 billion.

The E.ON grid unit, called Transpower Stromuebertragungs GmbH, employs around 700 people and generated around EUR6.2 billion in revenue in 2008. The network stretches from Germany's North Sea coast and the Danish border to the Alpine border of Austria in the far south of Germany.

Under the terms of the deal, TenneT would be required to keep the asset for at least five years, the person said.

E.ON and TenneT declined to comment.

E.ON last year committed to sell the electricity network in a deal it struck with the European Commission, which had investigated the company for alleged market abuse. The probe was subsequently dropped in return for E.ON pledging to sell the grid.

The agreement between E.ON and TenneT comes more quickly than many market observers had expected, given that the E.U. had granted E.ON a two-year deadline to finalize the divestment. That deadline would have expired in Nov. 2010.

The sale is also part of E.ON's plan to sell at least EUR10 billion worth of assets by the end of 2010 in an effort to lower its debt pile - which it built up in an acquisitions spree over the past two years - and refocus its business.

E.ON is the second power transmission grid operator in Germany to sell its network.

Vattenfall Europe AG - the German unit of Sweden's state-owned Vattenfall AB - is understood to have principally agreed to sell its 9,500-kilometer power grid to a consortium consisting of Goldman Sachs Group Inc. (GS), Deutsche Bank AG's (DB) infrastructure fund RREEF and Allianz SE (ALV.XE) for around EUR500 million and a pledge the new owners will invest between EUR3 billion and EUR5 billion in the expansion of the grid.

The buyers of the E.ON and Vattenfall Europe grids will have to invest considerable amounts in coming years to ensure that Germany's growing offshore wind generation capacity will be connected to the grid.

The person familiar with E.ON's plan to sell the grid to TenneT Monday said that the Dutch network operator didn't have to make specific investment promises.

"TenneT merely has to fulfill German laws that require grid operators to guarantee security of supply and ensure network connections for the increasing number of offshore wind parks," the person said.

The fact that E.ON's and Vattenfall's grids will be acquired by two separate investors represents a blow to plans to form a single German power grid operator. The new government and the country's grid regulator are in favor of merging the grids, saying a combined grid could generate considerably cost and efficiency synergies.

RWE AG (RWE.XE) and EnBW Energie Baden Wuerttemberg AG (EBK.XE) - the two remaining power transmission grid operators - have repeatedly ruled out selling their networks because they consider them part of their core business.

Company Web site: www.eon.com

-By Jan Hromadko, Dow Jones Newswires; [phone]; [e-mail]