Oligopoly profile: E.On
German utility company E.On AG recently announced yet another acquisition: it will buy British gas company Caledonia Oil and Gas, Ltd., a company which has interests in natural gas fields in 15 natural gas fields in the North Sea. The deal is worth around $835 million.
E.On has consolidated its domination of the German electric, water, and natural gas industries over the past few years. It has also spread its influence abroad, both in Europe and the US. The Caledonia gas buy has reinforced the companies growing UK operations.
The company has five target markets where it is aiming for a significant position (if possible, #1 or #2). The company is #1 in retail power and gas, and #2 in electrical generation in Germany. In the UK it is #2 in retail power and gas, and #2 in electrical generation. It is #1 in gas supplies throughout Eastern Europe, and a major player in Scandinavia and in one region in the US. The company has declared that it is looking to build its US presence in the near future.
E.On is poised for even more dynamic growth in its chosen sectors. Over the past five years it has concentrated on its core utility businesses, selling off interests in packaging, manufacturing, real estate, chemicals, and telephony. It has used the money it has gained to buy more and more electrical and gas suppliers. The future of its water utility holdings is in doubt, as that's not a sector where it has made new acquisitions.
In fact, this can be seen as a classic case of company that has transformed itself from a hard-to-manage conglomerate to a focused new oligopoly in a few related fields. As the listing below show, the acquisitions department at the company has been extraordinarily busy.
In Germany, E.On competes closely with rival utility company RWE, and between them the two companies are dominant. The most recent coup (2003) for the company was the controversial acquisition of Ruhrgas, the #1 natural gas supplier in Germany. E.On recently sold off its non-energy assets (Ruhrgas Industries) to an equity firm CVC Capital; this company makes gas meters, pipe, and furnaces. That transaction was for 1.5 million euros. In addition, the company sold off its shares in several other German gas suppliers, in order to placate antitrust regulators.
In addition, E.On has recently reached an agreement with Russian natural gas provider Gazprom to build together a new gas pipeline across the Baltic Sea from Russia to Germany, bypassing other countries. The 2 billion euro deals also involves German chemical and materials giant BASF. That move will solidify E.On's domination of the European gas market.
Here is a list of major transactions the company has made since 2000. The strategy of concentration is clear.
2005
Purchases NRE Energie, a major Dutch power and gas supplier, the #5 energy supplier in the Netherlands.
Purchases Romanian gas suppliers Distrigaz Nord (125 million euros) and electrical supplier Electrica Moldova. These complement the minority holding E.On has in gas supplier Congaz, and power generator CCNE, also in Romania.
Sells Viterra AG, its office/residential real estate division, to Deutsche Annington Immobilien for 7 billion euros, making it the largest residential real estate company in Germany with over 230,000 units. Deutsche Annington is a subsidiary of UK-based equity group Terra Firma Capital Partners.
2004
Acquires natural gas division of Hungary's largest oil and gas company MOL RT, a 2.1-billion euro deal.
Acquires two Bulgarian regional utilities, Gorna Oryahovitza and Varna. Between them, the two companies account for 25% of Bulgarian electricity.
Acquires UK power distributor Midlands Electricity for $1.6 billion euros.
2003
Acquires Ruhrgas, as already noted.
Acquires two regional Czech electric utilities, JME and JCE. The two supply roughly 24% of all Czech electricity.
Acquires Graninge, Sweden's #4 electrical utility, for 530 million euros.
2003
Sells Schmalbach-Lubeca AG, a packaging company, for 1.2 billion euros, to US packaging company Ball Corporation.
Sells Viterra Energy Services to equity firm CVC Capital Partners for 930 million euros. Viterra Energy Services is the world leader in billing electricity and water utility customers.
2002
Acquires the UK holdings of TXU, including power stations and retail electricity and gas supply for around 2.2 billion euros.
Sells logistics company Stinns AG to Deutsche Bahn, the German rail system, for around 1.6 billion euros.
Acquires Powergen plc, the #3 British electrical utility for around 15 billion euros, in the largest cross-border European utility acquisition ever. The purchase also include US utility Louisville Gas & Electric (Kentucky).
Acquires German electric utility Elektrizitaetwerke Wesertal from Finnish utility group Fortum for 545 million euros.
Sell Veba Oel AG, a chemical company, to BP and Petro-Canada for 3.3 billion euros.
Sells VAW Aluminium to Norsk Hydro for 3.1 billion euros.
2001
Sells US-based silicon wafer manufacturer MEMC Electronic Materials to Texas-Pacific Group for assumption of debt.
Sells Kloeckner & Co,, a packaging company, to US-based Ball Corporation for 1.1 billion euros.
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