|
 |
|
|
|
|
|
RWE Abandons $17 Billion Water Push to Focus on Power and Gas
Nov. 4 (Bloomberg) -- RWE AG, Europe's third-largest utility, plans to sell its U.K. and U.S. water businesses, abandoning a five-year, $17 billion expansion that drained investment away from growing energy markets.
Chief Executive Harry Roels is considering several ways to first dispose of the American Water Works Co. of New Jersey, including a public offering or a transaction with financial investors in 2007, Essen, Germany-based RWE said today in a statement to the Frankfurt stock exchange. The sale of London's Thames Water Plc will come later, the company said.
As RWE built the water company, its shares during the past five years lagged behind those of E.ON AG, its closest competitor, which targeted power markets from the U.K. to Finland as electricity demand and prices increased. Roels, a chemist and 30- year veteran from Royal Dutch Shell Plc, in 2003 joined RWE and pledged to limit further acquisitions and reduce its 23.3 billion euros ($28 billion) of debt, more debt than any European peer.
``If Roels gets a fair price, it's a sensible thing to do,'' Raimund Saxinger, who helps manage 5.3 billion euros for Frankfurt Trust in Frankfurt, said before today's statement. ``Only a sale at a reasonable price will help the share price, which is burdened by the unit at the moment because it's such a high-maintenance business.''
Former RWE chief Dietmar Kuhnt bought Thames Water, the supplier to London, for $9.8 billion in 2000, and the company plans to invest another 3.1 billion pounds ($5.5 billion) through 2010 to replace Victorian-era pipelines that leak one of every five gallons.
American Water Works, the largest private U.S. water company, plans to spend at least $2.5 billion on its operations, which RWE bought for $7.5 billion in 2001.
Following Vivendi, E.ON
``The need to invest in the water business is immense,'' said Mark Waldmann, an analyst at Dresdner Bank who has an ``attractive'' rating on RWE. ``A total of $600 billion has to be invested globally in the water industry in the next 10 years.''
RWE's water sale follows a similar strategy at Vivendi Universal SA, which reduced its majority holding in Veolia Environnement SA, the world's largest water company, to 5.3 percent in December. E.ON sold 81 percent of Gelsenwasser AG, Germany's biggest water utility, in 2003.
Investor interest is increasing in European water assets. A unit of Terra Firma Capital Partners Ltd., a buyout firm controlled by Guy Hands, on Oct. 17 said it will proceed with a 453 million-pound purchase of U.K. water and gas company East Surrey Holdings Plc.
Bristol Water Group Plc, the 150-year-old supplier in western England, was acquired earlier this year and South Staffordshire Group Plc in central England was taken over in 2004.
RWE's water operation is the third-largest such business in the world, after Veolia and Suez SA. The business generated an operating profit of 1.4 billion euros in 2004, about 23 percent of RWE's total. RWE will publish third-quarter profit on Nov. 16.
Lagging Returns
RWE stock during the five years ending Oct. 21 has returned an average of 5.8 percent a year to investors, less than the 7.2 percent from E.ON, Europe's largest publicly traded utility. Fortum Oyj of Finland, the best-performing utility during that time in the Dow Jones Stoxx Utilities index, returned an average of 44 percent a year, according to Bloomberg data.
RWE shares had their biggest gain in five weeks when German newspaper Berliner Zeitung reported on Oct. 24 that the company plans to sell parts of its water division. They have risen 34 percent since the beginning of the year, outperforming the 13 percent increase of the 17-member Bloomberg Europe Electric Index. The company is worth about 30 billion euros on the stock market.
Among 36 investment analysts, 47 percent recommend buying RWE shares. E.ON has a ``buy'' rating at 77 percent of analysts, according to data compiled by Bloomberg.
Selling Assets
Roels, 57, is already negotiating to sell the company's Chilean water activities and may sell RWE's 49 percent stake in China Water Co., because they are outside the company's primary markets.
Other assets outside of power have also gone for more than 2 billion euros, including Germany's largest construction company, Hochtief AG, and the world's largest maker of printing machines, Heidelberger Druckmaschinen AG.
RWE's net debt at the end of this year should be less than 12.4 billion euros, the company forecast in August.
Kuhnt bought the largest natural-gas distributor in the Czech Republic as well as Npower in the U.K. in addition to the water businesses. His strategy was to sell power, gas and water services to the same customers and save money in the process. The strategy is failing, said James Sparrow, an analyst at the Royal Bank of Scotland.
The strategy is appearing ``increasingly unconvincing,'' Sparrow said in a note published Oct. 26. ``RWE's focus is looking more energy based.''