(Removes "euro" from end of second bullet point)
* Sells grid to consortium led by First State and Borealis
* Price higher than expected, to book gain of $2.6 bln
* Prepares to sell Swedish and Norwegian grids too
* Fortum shares rise 4 pct
* Finnish politicians anxious about foreign ownership
By Jussi Rosendahl
HELSINKI, Dec 12 State-controlled Finnish
utility Fortum has agreed to sell its local power
distribution grid to a group of institutional investors led by
First State Investments and Borealis Infrastructure for 2.55
billion euros ($3.5 billion).
While the higher than expected offer from the consortium
excited investors, some Finnish politicians expressed
opposition, saying that foreign ownership would lead to higher
utility bills for consumers.
The deal is the latest in a series of regulated grid sales
made by large energy firms wanting to cut debt and focus on
their power generation businesses instead.
At the same time, it highlights the increasing popularity of
established infrastructure assets for pension funds and other
institutional investors seeking relatively safe and assured
returns in a low interest rate world.
Shares in the company were up 3.6 percent at 17.44 euros by
1447 GMT as the deal raised hopes of similarly high valuations
for Fortum's Swedish and Norwegian distribution networks which
it is also looking to sell.
"It looks like the deal price is around 10-15 percent higher
than what was expected," said Jari Honko, an Alandsbanken
portfolio manager who said Fortum was one of his fund's biggest
The deal values the Finnish network at around 16.6 times
earnings before interest, taxes, depreciation and amortisation
(EBITDA), well above multiples of around 10 in previous deals in
Markku Jarvinen, analyst at Finnish brokerage Evli, said
that applying the same valuation would make all of Fortum's
grids worth a total of around 9 billion euros.
"In any case, the indication is that we will end up with a
much higher total valuation than expected," he said.
Fortum launched the sale of the grid in September and
Reuters reported on Wednesday that the company was in exclusive
talks with the consortium.
The Finnish grid, which covers about 20 percent of the
country's local electricity distribution, booked 325 million
euros of sales and 154 million in EBITDA over the last 12
First State, an asset management business owned by
Commonwealth Bank of Australia, and Borealis
Infrastructure, owned by Canadian pension fund OMERS, both have
a 40 percent stake in the consortium.
The consortium also includes Finnish pension funds Keva with
a 12.5 percent stake and LocalTapiola Pension with 7.5 percent.
Markets had widely expected their participation to appease
political opposition to the sale of utilities to foreign
Workers' unions said foreign ownership could put the
reliability of the grid at risk and mean higher prices.
"This sale was a serious mistake and it could prove costly
for Finland," said Antti Rinne, the chairman of white-collar
union Ammattiliitto Pro.
The opposition Centre party, which has been leading recent
opinion polls, also said the consortium should have been
State-ownership has become a sensitive issue in Finland,
with opposition politicians and unions criticising the
government for not doing enough to save jobs while a broad range
of companies have slashed jobs in response to weak European
Pekka Haavisto, state ownership minister, said regulators
would keep prices in check. He also said a condition of the deal
was that jobs were protected.
"There will be no sacking of people," he told Reuters.
Fortum said it would book a gain of up to 1.9 billion euros
on the deal, which is expected to close in the first quarter
next eyar, corresponding to around two euros per share.
Chief Executive Tapio Kuula said its sale of the Swedish
grid could take place in the latter half of 2014, while the
smaller Norwegian business might be sold sooner.
He also said proceeds from the sale of the Finnish grid
would be used to lower debt and invest elsewhere.
"I think one possible option is to buy (German energy
utility) E.ON's nuclear or hydro assets in Sweden,"
said fund manager Honko.
Kuula also did not rule out a future increase in dividends.
Some analysts have said the Finnish government, looking to boost
its budget, may be counting on a higher dividend from Fortum
after the grid sales.
($1 = 0.7251 euros)
(Reporting by Jussi Rosendahl; Editing by Greg Mahlich and