* EDP joins forces with Borealis
* Grupo Villar Mir teams up with investor
* Businesses on sale worth up to 2 bln euros - bankers (Recasts, adds detail on price, information from sources)
By Arno Schuetze
FRANKFURT, July 16 Spain's Grupo Villar Mir and Portuguese utility Energias de Portugal (EDP) have emerged as potential buyers for German utility E.ON's Spanish assets, two people familiar with the process told Reuters.
EDP is teaming up with Canada's Borealis Infrastructure , while Grupo Villar Mir is joining forces with a financial investor, the people said. According to one of them, a first round of bids - for all or part of E.ON's Spanish activities - is due in early August.
Bankers and analysts have told Reuters the Spanish business could fetch between 800 million and 2 billion euros ($1.1-2.7 billion), depending on whether the company sells the whole business or only individual assets.
"The grid in the Basque Country is the most attractive part and will likely fetch 1 billion euros," one of the people familiar with the situation said.
The person said E.ON was unlikely to make any profit on its investment of roughly 1 billion euros in Biscay-based wind energy assets.
Spanish paper Expansion reported earlier on Wednesday that EDP and Grupo Villar Mir were interested, mentioning KKR, Riverstone, Brookfield, Blackstone and the infrastructure arm of JP Morgan as additional potential bidders.
The paper said the unit had a book value of 2.7 billion euros and that it could fetch up to 10 times its 2013 earnings before interest, tax, depreciation and amortisation (EBITDA) of 300 million euros.
Financial analysts disagreed.
"We struggle to justify the 2.7 billion euro price tag ... and see a realistic valuation as being roughly half that number," RBC Capital Markets wrote to clients.
E.ON, EDP, Borealis and Grupo Villar Mir declined to comment.
Although the arrival of more potential bidders will help avoid a fire sale, E.ON has little chance of recouping its original investment.
The company spent 11.5 billion euros on assets in Spain, Italy and France seven years ago in the expectation that appetite for energy would grow strongly in those countries.
That failed to materialise due to the sovereign debt crisis, forcing E.ON to write down nearly 6 billion euros on the assets.
E.ON, Germany's biggest utility, has hired Citi to advise it on the sale of the Spanish assets.
Its 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. ($1 = 0.7388 Euros) (Additional reporting by Christoph Steitz in Frankfurt, Paul Day and Jose Elias Rodriguez in Madrid and Filipa Lima in Lisbon; editing by Tom Pfeiffer)