* Assets could fetch up to 1.2 bln euros - bankers, analysts
* No timeline for deal has been set
* E.ON is a smaller player in Spanish power market (Recasts, adds background on Spanish market)
MADRID/FRANKFURT, April 4 (Reuters) - Germany's biggest utility, E.ON SE, has hired Citi to advise it on the sale of its assets in Spain, three people familiar with the matter told Reuters, in a bid to pull out of weak energy markets in southern Europe.
E.ON's plans to pull out of Spain, first reported in December, mark a further step by the energy firm to sell some of its underperforming coal and gas ventures, which have come under pressure from renewable power as well as tepid energy demand in Europe.
Weighed down by 32 billion euros ($43.9 billion) in net debt, E.ON is also looking to sell its Italian operations, sources have said, which would effectively end its pricey foray into southern Europe after having to take billions of euros of writedowns on these assets.
Bankers and analysts have estimated that the Spanish unit could fetch between 800 million and 1.2 billion euros, depending on whether the company sells all the business or just parts of it.
"The price will also greatly depend on the new delivery contracts for E.ON's power plants," one of the people said.
On a standalone basis, the energy producing units have a low value, he said, but if long-term contracts to supply energy to consumers are negotiated and then attached to the sale terms, their value increases significantly.
"The sticker price for the assets can be engineered depending on how you shape the delivery contracts," he added.
No timeline for the sale has been set, one of the people said, adding such a deal could take 12 to 18 months to materialise.
Likely buyers for the assets could include specialised private equity funds with a focus on energy, including ContourGlobal First Reserve and Riverstone, two of the sources said.
A spokesman for E.ON said the company was "continuously reviewing the strategic options" for its portfolio, but declined to comment on Spain.
Citi also declined to comment. ContourGlobal, First Reserve and Riverstone were not available for comment.
E.ON's operations in Spain, where it employs roughly 1,200 in staff, include 3.2 gigawatts (GW) worth of thermal plants and 1.1 GW of renewable capacity.
It sells electricity to about 688,000 customers, a fraction of Spain's more than 17 million household consumers, but has been campaigning to capture new clients who are fed up with paying some of the highest electricity prices in the European Union.
The distribution market has been traditionally dominated by Spain's largest electricity utility Endesa, with a 43 percent market share and the primary player in Spain's southern and northeastern regions.
Iberdrola and Gas Natural Fenosa are the main distributors in northern and central parts of Spain with total market share of 34 percent and 16 percent respectively. E.ON's main distribution areas are in the northern regions of Cantabria, Galicia, Asturias and Castille and Leon.
It is also one of the smaller players in terms of generation, with 4.3 GW in a country with total capacity of 107 GW, of which only half are used, even during peak demand.
Recent Spanish energy reforms, meant to curb a 30 billion euro tariff deficit caused by a gap between regulated prices and costs, have infuriated investors in renewable energy assets who complain the new rules are retroactive and drastically cut their return on investment. ($1 = 0.7291 Euros) (Additional reporting by Tracy Rucinski; editing by Ludwig Burger and Tom Pfeiffer)