Foreign Funds

RWE Faces Sheikh Up

Things are looking up. RWE towers in Essen. Source: dpa
Things are looking up. RWE towers in Essen.
  • Why it matters

    Why it matters

    If RWE gets an injection of fresh capital from a new shareholder, it will be able to boost profits and expand in the Middle East.

  • Facts

    Facts

    • Investors from Abu Dhabi are in talks with RWE about acquiring a 10 percent stake in the company.
    • They would invest around €1.4 billion and seek a strategic partnership.
    • Several municipal authorities have stakes in RWE and are concerned about share dilution.
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    Audio

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Germany’s biggest power producer, RWE, is a company rooted in place. Founded in 1898, its original name, Rheinisch-Westfälisches Elektrizitätswerk, highlights its origins in the heart of the Rhine and Ruhr valleys of industrial western Germany.

For much of its history, the utility was controlled by the municipal authorities in the region — mostly small- and mid-sized industrial towns — which today still control 25 percent of its shares.

But now more far-flung shareholders are interested. Handelsblatt has learned that investors from Abu Dhabi may be considering acquiring a stake in RWE of around 10 percent. The stake, which would amount to an investment of about €1.4 billion (€1.49 billion), would cement a new strategic partnership for the German utility — one that extends to the Persian Gulf.

The plans are still vague. An RWE spokesman confirmed the group had been approached a few months ago, and said: “We are currently reviewing various types of cooperation.” He declined to comment further.

The rumors have boosted RWE’s share price, which is now at €24.55, up 0.08 percent, in early trading.

Bloomberg first reported that Abu Dhabi’s Sheikh Mansour bin Zayed Al Nahyan, owner of British football club Manchester City, was interested acquiring a stake in the German utility.

RWE’s chief executive, Peter Terium, could certainly use an injection of capital.

The company is deeply in debt: At the end of 2014, net debt amounted to €31 billion. At the same time, profits have been melting away.  In 2014 the operating profits  fell by 25 per cent to €4 billion.

Any sort of capital increase would also dilute the holdings of these municipal bodies.

The company’s core business, the production of electricity in big power plants, is under pressure. Traditional coal and gas plants are being pushed out by Germany’s move to solar and wind power. RWE has to cut costs and rationalize across all its sectors, including renewables.

It makes sense to seek out a financially strong partner for investment, and it makes sense for the partner to come from of the Middle East, which is one of the few regions in which RWE wants to grow outside of its main markets in Europe.

Sheikh ManCity HB
Sheikh Mansour bin Zayed Al Nahyan, owner of Manchester City, is possibly eyeing RWE. Source: DPA

 

On January 1, RWE appointed Paul van Son, who was then chief executive of desert power initiative DII, to head up its Middle East operations. He will seek out business opportunities in the region, primarily in renewable energies.

Of course any sort of shareholding would come with strings attached. Municipal shareholders declined to comment when asked on Wednesday what they thought of the potential new investor. But it is clear their position would be weakened.

Manfred Schneider, head of the supervisory board — a non executive board that also has the power to sign off or block management decisions — already wants to take away one of the four seats they hold on the supervisory board. A major new shareholder would also demand a seat.

 

RWE-01

 

Any sort of capital increase would also dilute the holdings of these municipal bodies. The coffers of the municipalities in the Rhine and Ruhr are hardly overflowing, and the authorities would struggle to take part in any sort of significant capital increase. And if they don’t they will lose their blocking power on the board. A group of municipal authorities, including Dortmund, that have pooled their shareholdings into a single consortium would have significant problems. The RWEB consortium currently controls 15 percent of the company, and that gives them significant tax breaks, which they may lose if their shareholding is diluted.

Mr. Terium understands how sensitive the subject is. At the last AGM, he won the right to increase RWE’s capital by 20 percent. The municipal authorities agreed, but only under the condition that the move wins the unanimous support of the supervisory board: a place where they still exert considerable power. Change will be possible under these new rules but will not come easy.

 

Jürgen Flauger handles Handelsblatt’s coverage of energy from all angles: electricity and gas providers, international market developments and energy policy. To contact the author: flauger@handelsblatt.com

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