German Utilities Said in Lead to Buy CVC-Backed Evonik Plants

A group of German local utilities is the frontrunner to buy Evonik Industries AG’s power plant unit, said three people with knowledge of the matter. The business is valued at 3 billion euros ($4.1 billion), according to analysts.

The utilities, led by Duisburger Versorgungs und Verkehrsgesellschaft mbH, have support from the state governments and labor representatives which control Essen, Germany-based Evonik’s biggest shareholder, said the people, who asked to remain anonymous because details of the transaction are private. Energeticky Prumyslovy Holding, of the Czech Republic, German environmental services company Remondis AG and Turkey’s Park Holding are also bidding, said three of the people.

Evonik, in which private equity firm CVC Capital Partners Ltd. holds a 25 percent stake, is selling the unit, called Steag, to raise funds for its chemicals business. The buyer would access the fifth-largest portfolio of electricity generators in Germany, assets in the Philippines, Turkey and Colombia, as well as a power plant building business.

“Evonik is a political animal, so a group of municipal utilities may well have a trump card or two up its sleeve,” said Christian Kleindienst, an analyst with UniCredit SpA in Munich. “They need it as German municipal utilities are short in power generation.”

Kleindienst and fellow UniCredit analyst Jochen Schlachter said they estimate Steag to have an enterprise value, a measure of a company’s worth including its debt, of about 3 billion euros. UniCredit recommends investors buy Evonik’s bonds.

Energy Policy

Evonik spokeswoman Barbara Mueller declined to comment. Dirk Pomplun, a spokesman for Stadtwerke Essen AG, which speaks for the group of utilities, declined to comment. Remondis spokesman Michael Schneider declined to comment. Martin Manak, an EPH spokesman, declined to comment. Park Holding couldn’t immediately be reached for comment.

The local utilities want to acquire 51 percent of Steag to help determine energy policy in their region. The utilities may seek to sell assets including the non-German power plants, said one person.

The utilities aren’t willing to pay as much as other bidders for Steag and Evonik may reject their offer as too low, said one of the people.

The majority of the power Steag generates in Germany is purchased by utility RWE AG under private contracts. Those contracts could be renegotiated in 2012 and 2014, said one of the people.

Shut Plants

The utilities are concerned that Essen, Germany-based RWE may have the right to shut aging power plants in Steag’s portfolio and that has also lowered the price they are ready to pay, said one of the people. Lothar Lambertz, a spokesman for RWE’s German power generation unit, declined to comment.

Politicians from North Rhine-Westphalia, Saarland, the German government as well as the country’s IGBCE union supervise the management of the RAG foundation, which owns the remaining 74.9 percent of Evonik. RAG is trusted with funding Germany’s exit from deep-shaft coal-mining by selling the industry’s assets as well as Evonik.

Most of Germany’s municipal utilities, which supply more than 50 percent of the power and natural gas consumed in the country, are controlled by local authorities.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net Brett Foley in London at bfoley8@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Jeff St.Onge at jstonge@bloomberg.net