Germany’s RWE utility company completes sale to Russian firm despite opposition from the U.K. government.
German utility RWE AG (ticker: RWE:XETRA) closed the sale of its oil and gas unit Dea for €5.1 billion ($5.7 billion) to LetterOne Group, an investment firm headed by Mikhail Fridman, who has strong ties with Russian business. The U.K.’s Department of Energy and Climate Change (DECC) said Saturday that it would not approve the sale of the British North Sea natural gas fields, which form 20% of the Dea transaction, because of concerns regarding any future expansions of sanctions against Russia that might affect Fridman and any companies he owns.
Peter Terium, Chief Executive Officer of RWE AG said, “Both parties negotiated good value for money, and RWE can now focus fully on its core business,” in a press release from RWE. The value of the transaction was slightly higher than the €5 billion amount agreed on when the sale was restructured in January because of exchange-rate fluctuations. The sale is crucial for RWE, which is trying to reduce its €31 billion debt, reports The Wall Street Journal.
Concerns over sanctions in Russia
Dea produces about 100 MBOEPD in the U.K., Norway, Denmark and Germany. Its purchase gives Mr. Fridman a launchpad to start an international oil and gas company two years after selling his stake in Russian oil company TNK-BP to Rosneft (ticker: RNFTF). Fridman founded Alfa Group Consortium, an investment group that controls Alfa-Bank and several telecom companies, among other assets. Because of Mr. Fridman’s strong business ties in Russia, the DECC said that it would not approve the sale because it feared that sanctions might be expanded to include Mr. Fridman, disrupting the sale and development of oil and gas from the Dea assets.
LetterOne responded with a letter to the DECC, saying, “In the event that any notice requiring the further sale of RWE Dea is issued, we intend to seek judicial review of DECC’s decision and fully reserve all of our rights both in that regard and generally.” The letter also explains why LetterOne feels the sale is legal, saying that concerns over sanctions that have not already happened are unreasonable, and that the deal is structured in order to protect Dea from the effects of sanctions should they be put in place.
The letter also stated that should the DECC decide to require further change of control of Dea, “the situation that would ensue would likely be disruptive to production by RWE Dea.”
As part of the deal, LetterOne is creating a new subsidiary, L1 Energy, to be run by former BP chief executive Lord John Browne, reports BBC. LetterOne is a privately owned, Luxembourg-based investment fund that focuses on large-scale investments of $1 billion or more.
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