RWE AG share price down, completes sale of Dea unit to LetterOne

RWE AG, Germanys second-biggest utility, announced on Monday it has completed the sale of its oil and gas production unit RWE Dea AG to an energy-investment fund led by Russian billionaire Mikhail Fridman.

The controversial deal, estimated at €5.1 billion based on current exchange rates, confirmed information of a planned agreement released on Sunday, ending months of uncertainty whether it could go ahead as some EU countries were concerned about European oil and gas operations falling under Russian control.

The possible deal, first announced in 2014, faced serious opposition after the annexation of Crimea spurred a series of US and European sanctions against Russia, forcing the German company to delay the transactions closure for 2015.

Acquiring RWEs oil and gas business gives Mr. Fridman the assets to launch a new international oil company, with fields in the U.K., Germany, Norway and Denmark and licenses to pump in Algeria, Turkmenistan and other countries.

The UK government said on February 28th that it didnt support the deal in its current form, with the Department of Energy and Climate Change citing concerns that Mr. Fridman, who maintains contacts with Russian government officials, could become a target of future US and EU sanctions that could result in the shutdown of Deas British natural gas fields.

However, RWE said on Sunday that the British Energy Department’s decision does not affect the deals completion and that it will re-acquire the UK business within the first year after the sale, if LetterOne or one of its owners were to fall under sanctions.

The UK is the only country to formally oppose the transaction, which has already received the approval of Germany, Ukraine and the European Union.

“The sale of RWE Dea demonstrates that even in difficult conditions, we continue to realize our plans,” said Peter Terium, CEO of RWE AG. “Both parties negotiated good value for money, and RWE can now focus fully on its core business.”

The deal, which was initially pegged at €5 billion in mid-January but was revalued due to currency fluctuations since then, provides the German utility with a much-needed cash injection as it tries to reduce its €31 billion debt pile, while suffering weak wholesale power prices and a boom in renewable energy capacity.

“Our ambition is to develop and grow Dea,” said Mr. Fridman in the joint statement. “We are convinced that the current macroeconomic environment and the low oil price give us an opportunity to achieve our ambition.”

RWE AG traded 0.84% lower at €24.78 per share at 14:00 GMT in Frankfurt, marking a one-year change of -14.61%. The company is valued at €15.12 billion. According to the Financial Times, the 26 analysts offering 12-month price targets for RWE AG have a median target of €26.00, with a high estimate of €37.00 and a low estimate of €19.70. The median estimate represents a 4.06% increase from the previous close of €24.99.