By Jan Hromadko
FRANKFURT--German utility RWE AG said it intends to sell its oil
and gas production unit to Russian billionaire Mikhail Fridman in a
transaction valued at more than EUR5 billion ($7 billion).
Germany's second-largest utility by market value said Sunday it
had agreed in principle to sell its upstream oil and gas business
RWE Dea for around EUR4.5 billion to Mr. Fridman's
energy-investment vehicle, L1 Energy. L1 Energy will also take on
around EUR600 million of RWE's liabilities, raising the deal's
value to EUR5.1 billion.
RWE said it agreed to the "major contractual conditions" of the
deal, but details remain to be resolved. The company expects to
finalize the transaction shortly, it added.
"This agreement is a major milestone in delivering our announced
strategic realignment of the group," said RWE Chief Executive Peter
Terium.
RWE put Dea up for sale about a year ago in what was seen as a
cornerstone of its effort to reduce debt and conserve cash. The
company is struggling with falling profits from its power plants
because subsidized renewable energies are eating into its business
across Europe.
In a separate statement, Mr. Fridman's L1 Energy said the
acquisition will be the company's stepping stone for entering the
oil-and-gas industry.
Mr. Fridman, who also controls the conglomerate Alfa Group,
formed L1 Energy last year to invest heavily in energy assets
around the world. He raised much of the capital last year when he
and other Soviet-born tycoons and BP PLC sold a 95% stake in
TNK-BP, Russia's third-largest oil company, to state-controlled oil
giant Rosneft.
RWE Dea operates in 14 countries around the world. It produces
oil and gas mainly in the North Sea, but it explores and develops
new fields in many other regions, including North Africa, the
Caspian and South America.
In 2013, Hamburg-based RWE Dea generated an operating profit of
EUR521 million on revenue of around EUR1.8 billion. In 2012, it
produced around 84,000 barrels of oil equivalent a day.
The timing of the deal underscored the deep business ties
between Germany and Russia. The announcement coincided with a
controversial referendum in Crimea in which citizens voted to join
Russia and split from Ukraine. The vote has increased tensions
between the West and Russia.
Mr. Fridman's bid for RWE Dea topped a rival offer from
Germany's Wintershall AG, a unit of chemical giant BASF SE, which
bid around EUR3.5 billion.
A third offer had been filed by a consortium of U.S.
private-equity firm Kohlberg Kravis Roberts & Co. and
state-owned Kuwait Petroleum Corp. But people familiar with the
disposal talks said last week that KKR and Kuwait had dropped out
of the tender process.
RWE said the deal would be subject to the approval of its
supervisory board and regulators in several countries.
Eyk Henning contributed to this article.
Write to Jan Hromadko at jan.hromadko@wsj.com
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