E.On’s acquisition of Ruhrgas – a
study of competition issues and
regulatory concessions
Prepared by Utility Consultants Ltd
www.utilityconsultants.co.nz
© Utility Consultants Ltd 2003
Disclaimer
This research report is of a general
nature, and is not intended as specific
professional advice. Accordingly, neither
Utility Consultants, nor its’ directors and
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based on this research report.
Contents
Disclaimer
Acquiring
the stakes
Acknowledgments
Contents
Approval
process
Feedback
Introduction
Objections
Contact us
Overview
of the deal
Regulatory
concessions
Introduction
E.On’s recent acquisition
of Ruhrgas AG for a final
price of €10.2b marked a
new era in global energy
acquisitions
This stands apart as
one of the biggest deals
yet, and is likely to herald
a new era of investments
characterised by their
size
This report analyses
the regulatory approval
process, the objections
and the concessions that
were extracted from E.On
Overview of
the deal
Overview
of E.On
Overview
of Ruhrgas
Issues to be
discussed
E.On’s
strategy
Ruhrgas’ fit
with E.On’s
strategy
The fit with
Germany’s
energy policy
Formed from the
merger of VEBA
and VIAG in 1999
Third largest
utility in Europe
Revenue
about €80b
for 2001 year
Overview
of E.On
EBITDA
about €8.6b
for 2001 year
Annual electricity
sales of about
318,000 GWh
Recently
divested Degussa
(chemicals)
Energy & oil
represents about
57% of revenue
Cash reserves
thought to be
about €30b
Overview
of E.On
Already has many
acquisitions in
Europe and UK
Listed on the
Frankfurt & NY
stock exchanges
Primarily a
wholesaler selling
50b m3 per year
Annual
revenue
€11.8b
Has about a
60% share of the
German market
Overview
of Ruhrgas
Assets include
11,000 km of
pipelines
35% of gas comes
from Russia, 25%
from Norway
Owns about
6% of Gazprom
(at March 2003)
Expects to
increase this
stake to 8%
Expects to
invest €1b in new
gas pipelines
Overview
of Ruhrgas
Subsidiary VNG
has a 70% share of
east German market
Shift to gas as
primary fuel will
drive growth
Focus on
core energy
business
Strengthen position
through accretive
acquisitions
Dispose of
non-utility
businesses
E.On’s
strategy
Emphasis
on continual
cost-cutting
Continued
re-structuring to
maintain focus
and alignment
Solid fit with core
energy business
Increasing shift to
gas will provide
increased sales
Ruhrgas’
fit with E.On’s
strategy
Many synergies
from parallel value
chains
Stake in Gazprom
fits well with E.On’s
push eastwards
Acquired markets
have high revenue
densities
Need for future
infrastructure
investment
Fit with
Germany’s
energy policy
Need to secure
Germany’s gas
imports
Acquiring
the stakes
E.On’s Initial 38.5% stake
in Ruhrgas was acquired
from several companies
including Vodafone and
Gelsenberg
E.On acquired a
further 40% stake from
Shell, Exxon-Mobil and
Preussag
Final 20% stake was
acquired from RAG
coincident with the sale
of Degussa to RAG
Approval
process
Initial application
to Federal Cartel
Office
Key stages in
the approval
Appeal to the
Economics
Ministry
Court injunction
(followed by out of
court settlements)
Initial application to the Federal Cartel Office
for approval to acquire 100% of Ruhrgas AG
Rejection of this application on the basis
that E.On would increase its already dominant
position in the German gas market
Jan 02
E.On appeals this rejection to the Economics
Ministry, seeking an exemption on the basis
that the benefits to the German economy out
weight the loss of competition
Economics Ministry over-turns the Federal
Cartel Offices’ initial rejection
Jul 02
Several objectors to the proposed deal were
successful in obtaining an injunction from the
Düsseldorf court on the basis of procedural
errors in the Economics Ministry’s over
turning of the Cartel Offices’ initial rejection
Court decision was
widely expected to up
hold previous rulings
blocking the Economics
Ministry’s clearance
on the basis of market
dominance rather than
procedural error
Aug 02
Economics Ministry conducts a second
investigation that corrected the alleged
procedural errors and confirmed its’ previous
over-turning of the Cartel Offices’ rejection,
but with additional concessions
Sep 02
Düsseldorf court maintained its injunction
until its’ final decision was expected in late
January 2003 (later confirmed as 31st)
Dec 02
Key risk of the court case
was that it could be
referred to the EU who would
be in a difficult situation of
needing to appear to not
simply be following a lower
court, but also to not totally
ignore the findings of a lower
court. Referral to the EU
could also have allowed
OFGEM to object
E.On also had the option of
appealing the Düsseldorf
court’s ruling to the German
Supreme Court, but this could
have delayed proceedings
until the end of 2004
Further issue that RAG’s
€38 per share bid for
Degussa would lapse on
31/1/3 unless the court ruled
in E.On’s favor on the
Ruhrgas acquisition
E.On begins negotiations with the 9
plaintiffs to obtain out-of-court agreement
on suitable concessions
Plaintiffs withdraw objections before
Düsseldorf court case begins as suitable
out of court agreements are reached
Jan 03
Objections
Ampere
Ares Energie
Concord
Power
EnBW
9 objectors
Fortum
GGEW
Stadtwerke
Aachen
Had the Düsseldorf court
case proceeded and then
been referred to the EU,
OFGEM may also have been
able to object on the basis of
reduced competition of gas
supply to the UK
Stadtwerke
Rosenheim
Trianel
Company
Basis of objection to Ruhrgas acquisition
Ampere
Concerned that a reduced number of suppliers could adversely effect
their broking activities.
Ares Energie
Concern that an enlarged E.On would make it difficult for Ares Energie
to grow its share of the German market.
Concord Power
Could result in unfavorable gas supply conditions to a planned power
station in Lubmin (in the north-east).
EnBW
Possible concerns that in a vertically integrated E.On, the Ruhrgas
component would favor E.On to EnBW’s detriment. May also have
been concerned about a reduction in the number of wholesalers.
Fortum
Concern that an enlarged E.On would make it difficult for Fortum to
grow its share of the German market.
GGEW
Possible concerns that in a vertically integrated E.On, the Ruhrgas
component would favor E.On to GGEW’s detriment. May also have
been concerned about a reduction in the number of wholesalers.
Stadtwerke Aachen
Possible concerns that in a vertically integrated E.On, the Ruhrgas
component would favor E.On to Stadtwerke’s detriment. May also
have been concerned about a reduction in the number of wholesalers.
Stadtwerke Rosenheim
Possible concerns that in a vertically integrated E.On, the Ruhrgas
component would favor E.On to Stadtwerke’s detriment. May also
have been concerned about a reduction in the number of wholesalers.
Trianel
Concerned that a reduced number of suppliers could adversely effect
their broking activities.
Regulatory
concessions
Divest
businesses
Auction gas
allocations
Key classes of
concessions
Grant favorable
supply conditions
to divested firms
Commit to
investment
program
Economics Ministry
viewed this as essential,
but it was not included
in the final concessions
Stake in EWE
(Oldenberg)
Stake in
Stadtwerke
Bremen
Stake in
Bayerngas
Divest
businesses
(Ruhrgas)
Stake in VNG
Stake in
Gelsenwasser
An additional criteria
imposed was that the
divested businesses must
be sold to viable entities to
ensure that they provide
real competition to E.On
Stake in
Thuega
Many of the plaintiffs wanted
this concession included but
in the end it was excluded
Auction 200b
kWh of gas to
competitors
Auctions to be in
October 2003, 2004
2005 and 2006
Auction gas
allocations
Two auctions
to occur at the
Emden/Bunde hub
Two auctions
to occur at the
Waidhaus hub
Grant favorable
supply conditions
Companies that buy more than 50%
of their gas from E.On or Ruhrgas have
the right to re-negotiate their contracts,
including reducing their contracted
consumption by up to 20%
Acknowledgements
Gill Griffith-Jones,
Reuters
Utility Consultants Ltd
acknowledges the help
of the following people
in compiling this report
A kind lady who
wished to stay
anonymous
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