* RWE strikes deal to sell DEA unit to Fridman-led group
* Price at upper end of range, but RWE loses key profit
* Shares in RWE rise 1.3 percent
(Adds details on deal, analysts, valuation)
By Christoph Steitz
FRANKFURT, March 17 Shares in troubled utility
RWE rose after it reached a deal to sell its oil and
gas production arm to investors led by Russian tycoon Mikhail
Fridman for 5.1 billion euros ($7.10 billion), a high price but
the group will lose one of its main profit drivers.
At 1157 GMT, shares in RWE were 1.1 percent higher,
outperforming a 0.9-percent rise in the STOXX Europe 600
Utilities Index, with traders and analysts welcoming
RWE's sale of its DEA unit to Fridman's investment
"Good news that RWE has finally sold DEA at a higher price
than we and consensus were expecting," Santander analyst Oscar
Najar Rios said in a note, adding the group should now focus on
cost cutting and lowering its 30.7 billion euro debt pile.
Sources previously told Reuters that indicative bids came in
a range of 3.5-5 billion euros, with Fridman making the highest
The transaction is raising eyebrows at a time when East-West
relations have deteriorated over an ongoing crisis in Ukraine's
Crimea region, putting Russia at odds with the United States and
Some analysts also argue that DEA was an important part of
RWE, which is suffering from an industry crisis caused by a rise
in renewable energy sources, forcing it to book its first net
loss since 1949 earlier this month.
"We frequently criticized the transaction in general as it
takes away one of the few future growth drivers of the company,"
said Equinet analyst Michael Schaefer.
DEA, which accounted for about nine percent of RWE's
operating profit in 2013, employs about 1,400 staff and owns
stakes in about 190 oil and gas licenses or concessions in
Europe, the Middle East and North Africa, some of which do not
produce and are in need of large investments.
The deal values DEA at about 5.4 times EBITDA, including
assumed debt, a discount to the 6.3 times average for the
European oil and gas exploration and production sector,
according to StarMine.
The transaction is not expected to face regulatory hurdles,
to be obtained in all 14 countries DEA is active in, and RWE on
Sunday said it had informed the Germany government about the
transaction and received no indication that it would be opposed
to the deal.
A spokeswoman for Germany's Economy Ministry said on Monday
Europe's biggest economy was not worried that the deal would be
a threat to natural gas supplies.
Fridman was one of the "group of seven" businessmen who
funded former Russian President Boris Yeltsin's re-election bid
in 1996. Since Putin came to power 14 years ago, several of them
have been driven out of Russia, while others have seen their
businesses blighted by a lack of political patronage.
Luxembourg-based investment vehicle LetterOne was set up by
Fridman last year to invest $20 billion or more in global oil
and gas projects. LetterOne's L1 Energy Fund is run by German
Khan, who, together with Fridman, controls Alfa Bank, Russia's
largest privately owned lender.
Buyout group Pamplona Capital Management and Morgan Stanley
acted as advisors to LetterOne, sources familiar with the
Pamplona did not act as a co-investor, one of the sources
However, Pamplona's head Alex Knaster is one of the
financial backers of the DEA transaction and also acted as a
lead negotiator, two sources said, adding that the Russian-born
manager has strong ties with Fridman since serving as Alfa Bank
Chief Executive from 1998 to 2004.
Morgan Stanley and Pamplona declined to comment.
($1 = 0.7181 Euros)
(Additional reporting by Elizabeth Piper in Moscow, Arno
Schuetze in Frankfurt and Stephen Brown and Gernot Heller in
Berlin; editing by Anna Willard)