E.on settlement paves way for Degussa sale to RAG

31 January 2003 14:00  [Source: ICIS news]

FRANKFURT (CNI)--Germany energy group E.on, parent company of speciality chemicals producer Degussa, on Friday settled out of court with all nine energy companies opposing its Euro10bn ($11bn) plan to acquire compatriot gas distributor Ruhrgas. The last-minute deal paves the way for German coal and chemicals group RAG to acquire the majority of Degussa.

The Dusseldorf higher regional court was due to rule today in a case brought by E.on's competitors against the Ruhrgas takeover. E.on, which has not commented on the settlement, is believed to have made substantial financial concessions and also agreed to open its gas pipelines for competitors.

As part of the settlement, E.on also is reported to have agreed to take a 75.1% stake in energy broker Ampere, one of the plaintiffs in the Dusseldorf case.

Under a two-stage scheme, E.on will swap the majority of Degussa for RAG’s 18% Ruhrgas stake. This deal would have collapsed if E.on had failed to settle with its competitors or if the court had not allowed the transaction to go ahead. The deadline was midnight tonight. In this case, the Degussa shares already tendered to RAG would have reverted to their former status.

The takeover of the Degussa majority will give RAG two chemical subsidiaries: Degussa, with Euro13bn in annual sales in 2001 and Rutgers with Euro2.8bn, including Euro1.2 bn in chemicals and Euro1.6 bn in plastics processing. While RAG has said there are no plans to merge the two, especially as there are few synergies, analysts are sceptical. "It would not make sense to hold two separate chemical companies," one commented.

Separately, RAG this week announced plans to acquire 100% of Rutgers through a squeeze-out of the remaining 1.59% free float shares, thereby "simplifying the ownership structure". The group indirectly holds 98.41% of the chemical producer’s equity through its wholly owned subsidiary RBV.

Both Degussa and RAG today welcomed E.on's settlement and the removal of legal obstacles to their merger.

RAG chairman Ralf Starzacher said: "For RAG as well as Degussa the transaction makes good strategic sense; all participants will benefit equally. In RAG, Degussa will find a reliable partner that will regard its long-term engagement in the company as an investment in a joint future." He added that the Degussa takeover will take RAG an important step closer to the re-focusing of its businesses from coal to chemicals.

Starzacher said RAG is still awaiting formal approval for the Degussa takeover from the German federal government and the state of North Rhine-Westphalia. This is expected during the course of Friday so that the deal can be finalised by the end of the day, he added.

Degussa's chairman Utz-Hellmuth Felcht said in welcoming the E.on settlement that a 46.48% stake in Degussa has so far been tendered to RAG in response to its Euro38/share offer. He confirmed that RAG intends to raise its stake in Degussa to 50.1% in a second step on 31 May 2004.

Germany's new economics and labour minister Wolfgang Clement also greeted the E.on settlement, adding that it is "important that the uncertainty has ended." However, he added that "the length of the procedure shows us that there is a problem. In this competitive environment, German companies cannot afford such long delays."

Clement has proposed lifting restrictions on ministerial overrides of cartel authority decisions, but is expected to face considerable opposition if he tries to push through appropriate legislation.

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