* Goldman Sachs is among E.ON’s advisers, people say
* Sale would be one of the largest utility deals this year
* Analyst sees sale price of 5 bln eur
* E.ON shares up 0.1 pct, sector up 0.8 pct
(Adds analyst comment, updates shares)
By Michael Erman and Peter Dinkloh
NEW YORK/FRANKFURT, March 2 (Reuters) - Germany’s E.ON (EONGn.DE), the world’s largest utility by sales, may sell its U.S. unit in what could be one of the biggest deals in the industry this year, people familiar with the matter told Reuters.
“It’d be good to get rid of that business,” said a person from within E.ON familiar with the management’s strategy.
“Our debt is a real burden for us.”
E.ON had bought the E.ON U.S. unit, formerly known as LG&E, in 2002 as part of its 9.6 billion pound ($14.30 billion) takeover of Britain’s Powergen, but the overseas operation remained separate while it was integrating European operations such as energy trading.
Powergen had paid about $3.2 billion for LG&E in 2000.
Utility deals in the United States are a drawn-out process because they attract tough scrutiny from states and regulators, leading for instance to a planned merger of FPL Group (FPL.N) and Constellation Energy Group CEG.N to fall apart.
Goldman Sachs is advising E.ON on the possible sale. Potential bidders could include Duke Energy Corp (DUK.N), Southern Co (SO.N), American Electric Power Co Inc (AEP.N) and PPL Corp (PPL.N), other people familiar with the matter said.
Goldman Sachs and E.ON declined to comment.
“There is not an obvious buyer who could easily handle a takeover. All U.S. utilities located around the LG&E frontiers are loaded with debt,” WestLB analyst Peter Wirtz said.
“If E.ON decides to sell shares of the business in an initial public offering they might get 4.5 billion euros, if they sell it to another utility they might get around 5 billion euros.”
E.ON shares advanced 0.1 percent to 26.62 euros at 1451 GMT while the Stoxx European utilities index .SX6P rose 0.8 pct.
The power company aims to generate 10 billion euros ($13.52 billion) in cash from divestments by the end of the year. The divisions it has shed so far still leave it 4 billion euros shy of that target.
The divestments are meant to reduce E.ON’s economic net debt, which soared to 46 billion euros by the end of Sept. 2009, the last figure available, from 18 billion at the end of 2006.
Economic net debt includes the company’s liabilities plus its pension liabilities and obligations for its nuclear power plants, minus its cash and other funds.
The U.S. division based in Louisville, Kentucky, consists of the Louisville Gas and Electric Co and Kentucky Utilities Co and generated adjusted earnings before interest and taxes of 395 million euros on sales of 1.9 billion in 2008.
A sale could be the second large utility deal in the U.S. this year after Ohio’s FirstEnergy Corp (FE.N) takeover of Pennsylvania’s Allegheny Energy Inc AYE.N in a deal currently valued at about $4.4 billion in stock.
E.ON also operates wind farms in the United States which are part of its renewables business and are not operated by the E.ON U.S. Midwest unit. ($1=.6713 Pound) ($1=.7395 Euro) (Editing by Michael Shields and Jon Loades-Carter)