Russian tycoon to buy RWE's oil and gas production unit

Mon Mar 17, 2014 1:08pm EDT
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By Christoph Steitz and Arno Schuetze

FRANKFURT (Reuters) - German utility company RWE RWEG.DE is to sell its oil and gas unit DEA RWEDE.UL to investors led by Russia's second-richest man Mikhail Fridman, giving up a profitable part of its business in a bid to emerge from a deep energy industry crisis.

RWE posted its first net loss since 1949 earlier this month, hit by weak European energy demand, 30.7 billion euros in debt and a surge in renewable energy capacity that has pushed coal and gas-fired plants out of the market.

Fridman's investment vehicle LetterOne has hired investment bank Rothschild as a political advisor for the deal, sources told Reuters, an unusual move in M&A deals that becomes necessary if government approval is in doubt.

The deal comes as relations deteriorate between Russia and the West over Moscow's seizure of Ukraine's Crimea region, and a source said Rothschild had undertaken some lobbying ahead of the transaction in Berlin.

"The timing of the deal could be better indeed, but I reckon there won't be much opposition as the Russian state is not involved," said a senior industry source.

Other investors in LetterOne include fellow billionaires Alexey Kuzmichev, Petr Aven, Andrei Kosogov and German Khan, who, together with Fridman, controls Russia's largest privately held lender Alfa Bank, a source familiar with the matter said.

LetterOne was also advised by buyout group Pamplona Capital Management and Morgan Stanley, sources familiar with the transaction said, adding Pamplona did not act as a co-investor.

However, Pamplona's head Alex Knaster is one of the financial backers of the DEA transaction and also acted as a lead negotiator, two sources said, adding that the Russian-born manager has strong ties with Fridman, having served as Alfa Bank Chief Executive from 1998 to 2004.   Continued...

A view of the headquarters of German utility RWE in Essen November 14, 2013. REUTERS/Ina Fassbender