* E.ON agrees to sell U.S. unit to PPL
* PPL buys business for $6.7 billion
* Largest U.S. power deal of 2010
(Changes to reflect confirmation, adds new details
By Michael Erman and Peter Dinkloh
NEW YORK/FRANKFURT, April 28 Germany's E.ON
(EONGn.DE), the world's largest utility by sales, agreed to
sell its Kentucky-based unit to U.S. peer PPL (PPL.N) for $6.7
billion (5 billion euros) in cash, as the U.S. utility
refocuses on steadier, regulated operations.
PPL will be picking up Kentucky's two largest utilities --
Louisville Gas & Electric Co and Kentucky Utilities Co -- in
the deal. They serve about 1.2 million customers and operate
about 7,600 megawatts of electric generation.
PPL's shares fell nearly 8 percent after reports of the
deal surfaced earlier on Wednesday.
PPL Chief Executive James Miller said the deal "will
immediately improve PPL's business mix by adding
high-performing regulated utility operations" to its mix of
regulated and unregulated operations.
Still, the deal is expected to be modestly dilutive in the
first full year after the combination closes and accretive to
earnings by 2013.
PPL was likely attracted to the assets because they were
regulated and predictable, according to Dudack Research Group
utility analyst Daniele Seitz.
The company's management has recently been stung by its
unregulated operations that sell power into the open market at
competitive prices, she said. The economic downturn has taken
its toll on electricity prices in recent years due to weak
"They've felt really uncomfortable being thrown around by
the market," Seitz said. "They were looking for something that
was secure, strong and basic."
PPL said it will also assume $925 million of debt and
receive tax benefits of $450 million as part of the deal. The
company has has committed bridge financing for the transaction
from Bank of America Merrill Lynch and Credit Suisse.
LARGEST U.S. UTILITY DEAL THIS YEAR
The sale, one of a slew of divestments by European
utilities to cut debt after a takeover spree, is part of E.ON's
efforts to shed more than 10 billion euros worth of assets by
the end of the year.
Reports of the auction surfaced last month in Reuters and
other news outlets. Sources told Reuters that PPL, U.S. utility
Duke Energy (DUK.N), and a consortium involving Canadian
utility Fortis (FTS.TO) were the last remaining parties
The sale is at the high end of what was expected from the
sale -- analysts such as Mario Kristl from DZ Bank had
estimated the division, formerly known as LG&E, to be worth as
much as 5 billion euros ($6.66 billion).
The deal is also the largest in a string of recent
transactions in the U.S. power sector, eclipsing Ohio's
FirstEnergy Corp (FE.N) $4.4 billion all-stock takeover of
Pennsylvania's Allegheny Energy Inc AYE.N.
Utility deals in the United States are drawn-out procedures
which face tough scrutiny from states and regulators, which
have caused several large proposed combinations to fall apart
in the last decade.
The deal will require approval in Kentucky, Virginia,
Tennessee, and by federal regulators. PPL expects the deal to
close by the end of the year.
E.ON's divestments are meant to reduce E.ON's economic net
debt, which soared to 45 billion euros by the end of 2009, from
18 billion at the end of 2006.
Because E.ON is still 4 billion euros shy of its divestment
target, selling the business would be a major step to execute
E.ON had to cancel the sale of its Italian gas grid earlier
E.ON also operates U.S. wind farms as part of its
renewables business and not the E.ON U.S. unit.
Goldman Sachs advised E.ON on the sale. Bank of America and
Credit Suisse advised PPL.
PPL shares fell $2.13, or 7.7 percent, to $25.60 on the New
York Stock Exchange after reports of the deal surfaced on
E.ON shares rose in a falling market. The stock was up 1.1
percent at 28.06 euros at 1504 GMT, while the Stoxx utilities
index dropped 0.8 percent.
(Writing by Peter Dinkloh; Editing by Mike Nesbit and