UPDATE 1-RWE sells German grid in 1 bln euro deal -source

Thu Jul 14, 2011 8:43am EDT

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* Agrees to sell 75 pct to group of insurers -source

* Deal values whole grid at 1 bln eur including debt -source

(Adds details, background)

By Peter Dinkloh

FRANKFURT, July 14 (Reuters) - Germany's RWE , Europe's fifth-largest utility, agreed to sell its German long-distance power grid in a 1 billion euro ($1.4 billion) deal, a person close to the buying consortium said on Thursday.

"There is an agreement on the deal," the source, who declined to be identified, told Reuters on Thursday.

RWE agreed to sell a 75 percent stake in the 11,000 kilometres of high-voltage lines to a consortium of insurers, valuing the whole division at around 1 billion euros including debt, said the person.

RWE is the third German utility to sell its power grid as regulation diminishes returns from the networks. In addition, weak power and gas prices as well as a tax on their nuclear power plants made the utility predict three years of falling profits.

Chief Executive Juergen Grossmann has said he plans to sell 8 billion euros of assets, but people with knowledge of the matter told Reuters that he had also considered giving up control of the utility and merging it with Spanish peer Iberdrola .

The enterprise value of 1 billion euros equals the so-called regulatory asset value of the 11,000 kilometre network, which is the value the grid regulator uses to calculate the permitted returns for the grid.

The buyer consortium consists of a group of five pension funds of German and Swiss insurers, including Munich Re (MUVGn.DE) and Talanx , another person close to the transaction said on Wednesday.

Even though it is selling a majority, the German utility wants to retain operational control of the network after the sale, sources familiar with the matter told Reuters.

Germany is revamping its power supply after the nuclear meltdowns in Fukushima; it took the country only months to decide to phase out nuclear power by 2022, reversing last year's decision to let nuclear plants run decades longer.

It might cost as much as 80 billion euros to expand the German power grid to connect new power generation facilities to replace its 17 nuclear power plants faster than planned, the German grid regulator said in April. (Editing by Will Waterman)

($1=.6991 Euro)

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