Takeover Dispute

E.ON-Uniper spat over Fortum bid heats up

No love lost: Uniper's Bernhard Reutersberg and E.ON's Karl-Ludwig Kley. Source: Handelsblatt [M]

A family feud is underway in Germany’s beleaguered energy sector. E.ON, the country’s second-largest power company, is embroiled in a dispute over a foreign takeover bid for Uniper, its former fossil-fuel division. In stark contrast to a behind-doors approach favored by Germany’s corporate titans, E.ON has thrown discretion to the wind by taking the conflict public.

Karl-Ludwig Kley, E.ON’s supervisory board chairman, has written to his counterpart at Uniper, Bernhard Reutersberg, to complain about the latter’s response to a takeover bid from Finnish rival Fortum. Uniper was formed last year when E.ON spun off its “dirty fuel” activities into a separate company and floated it on the stock market.

Despite the divestment, E.ON remains Uniper’s largest shareholder, with a stake of just under 47 percent. Fortum had announced in September that it planned to submit a bid of €22 (about $26) per share for Uniper.

“It is extraordinary that the management would disparage its own company in a paid advertising campaign.”

Pekka Lundmark, chief executive of Fortum, on the tiff between E.ON and Uniper

The conflict first unfolded when E.ON’s chief executive Johannes Teyssen said he wanted to sell the group’s stake to Fortum. He came up against fierce resistance from Uniper’s boss, Klaus Schäfer, who branded the bid “hostile” as soon as it was announced.

In his letter to Mr. Reutersberg, Mr. Kley says he is observing the activities of Uniper’s management board with regard to Fortum’s bid “with growing irritation.” He ended by calling on Mr. Reutersberg to make Mr. Schäfer see reason. “Looking reasonably at the situation and its alternatives, it is not discernible how the behavior of the management board of Uniper, including its refusal to enter into talks with Fortum, could be in the interests of the company, its employees and its shareholders,” E.ON’s supervisory board chief said.

Mr. Kley said he assumed that Mr. Reutersberg had “made the management board of Uniper aware of its duties,” adding: “In the interests of Uniper and above all of its staff, it would be good if the management board would abide by this declaration I assume you have made.”

Both Mr. Kley and E.ON declined to comment on the letter when approached. The letter is likely to have been provoked by the whole-page advertisements that Mr. Schäfer placed in 10 Finnish daily newspapers on November 1, in which he posted an open letter to shareholders in Fortum, criticizing the takeover bid.

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Mr. Schäfer stated that Fortum’s carbon dioxide emissions would increase massively with Uniper’s coal and gas-fired power plants, and that the Finnish group’s risk profile would change significantly due to Uniper’s trading activities. He claimed that the “hostile takeover” would take Fortum to the limits of its financial capacity, which could affect its credit rating and growth prospects, and said that the reputation of its biggest shareholder, the Finnish state, could even be damaged.

Fortum chief executive Pekka Lundmark expressed anger at the advertisements, saying he found it “extraordinary that the management would disparage its own company in a paid advertising campaign,” adding: “We are not used to this kind of thing in Finland.”

Mr. Kley also stated in his letter that it had been announced when E.ON was split up that the remaining stake in Uniper would be sold soon thereafter, and that the planned sale to Fortum was in line with this. The bid, which Fortum not yet been made public, is being examined by BaFin, the German financial regulator, with approval expected next week.

However, E.ON has already agreed an option with Fortum to sell its shares in early 2018. The irony is: because such a high penalty has been agreed in the option deal, Mr. Teyssen can effectively no longer pull out, raising questions as to the sense of Mr. Krey’s inflammatory letter to Uniper. The bid puts the total value of Uniper at around €8 billion, of which E.ON would pocket €3.76 billion.

Jürgen Flauger is an energy correspondent at Handelsblatt. Claire Corlett and Jeremy Gray adapted this story for Handelsblatt Global. To contact the author: flauger@handelsblatt.com.

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