UPDATE 2-E.ON sells majority of waste-burning unit

Wed Dec 19, 2012 10:52am EST

* E.ON will hold 49 percent stake in joint venture with EQT

* Joint venture to acquire Energy from Waste unit

* Enterprise value of roughly 1 billion euros -source

* Transaction expected to close in Q1 2013

* EQT sees scope for expansion of unit in UK, Poland (Adds comments from EQT on future strategy)

FRANKFURT, Dec 19 (Reuters) - German utility E.ON is to sell a majority stake in its waste-burning unit to private equity firm EQT, as it nears the end of a 15 billion euros ($20 billion) asset disposal drive to cut debt.

Germany's largest utility said on Wednesday it would sell its Energy from Waste unit to a newly formed joint venture with EQT Infrastructure II, a fund belonging to EQT, the private equity firm backed by Sweden's Wallenberg family.

These plants now compete for shrinking amounts of waste as recycling increases and incineration companies must pay more for the refuse they use as fuel while power prices are falling.

E.ON will hold 49 percent in the joint venture, while EQT Infrastructure II - which will see its total funds rise to 1.9 billion euros shortly - will own the remainder.

According to a source close to the transaction, EQT is investing roughly 500 million euros in the joint venture, whose enterprise value is set at about 1 billion euros in the deal.

In June, E.ON halted the sale of Energy from Waste after receiving bids that it said were too low.

EQT will seek to increase the Energy from Waste's efficiency and launch an expansion abroad, EQT partner Lennart Blecher told Reuters.

"We are strongly looking into the UK, which is a prosperous market. And the second place we are checking on is Poland, as they - since they joined the EU - have come up with similar waste disposal conditions like the rest of Europe," Blecher said.

EQT also sees possibilities in London and Belfast, with a general guidance being that investments could total up to 100 million euros per plant, he said, adding the investor may join forces with local peers.

EQT should also be seen as a possible investor into assets such as the gas grids from EnBW or BASF, expected to come on the market, Blecher said.

EQT should be regarded as a bidder "for some of them, not for all of them", he said, adding: "It is important that we would to be able to add value from an industrial point of view."

E.ON's transaction with EQT, which requires antitrust approval, is expected to close in the first quarter of 2013, the utility said.

With the deal, E.ON said it will have achieved more than 14 billion euros of its target to generate 15 billion euros through asset sales by the end of 2013.

E.ON Energy from Waste generated revenue of 544 million euros in 2011. It has 18 waste incinerators in Europe, most in Germany, with an annual capacity of 4.8 million tonnes.

The market faces overcapacity after Germany encouraged the construction of incinerators in the 1990s to reduce the use of landfills.

In Germany less than 1 percent of electricity comes from waste. ($1=0.7568 euros) (Reporting by Arno Schuetze and Christoph Steitz; Editing by Mike Nesbit)