FRANKFURT/PRAGUE Czech energy company EPH will buy a 49 percent stake in Slovak gas utility SPP from Germany's E.ON (EONGn.DE) and France's GDF Suez (GSZ.PA) for a total of 2.6 billion euros ($3.5 billion), pushing ahead in a multi-billion acquisition strategy.
The deal, whose price tag was announced by E.ON and GDF on Tuesday and which should be finalized in the coming weeks, is in line with the western energy companies' divestment plans and marks a major step for EPH, which has been looking to expand in the Czech, Slovak and German markets.
EPH, whose biggest shareholder is billionaire Czech businessman Petr Kellner, is a leading bidder for RWE's (RWEG.DE) Czech gas transmission system operator Net4Gas, which could fetch 1.4 billion to 2 billion euros according to sources.
For E.ON, the sale of its 24.5 percent SPP stake means it has realized about 17 billion euros in asset sales, beating its target. Hit by Germany's decision to pull out of nuclear power, stagnating energy demand in Europe and high debt, E.ON aimed to divest 15 billion euros worth of assets by the end of 2013.
GDF has now also sold holdings worth more than 5 billion euros and aims to sell an additional 11 billion euros under its new program for 2013/14. It said the deal would reduce its net debt by about 1.3 billion euros.
The Slovak government, SPP's majority shareholder, signed off on EPH's purchase last month, in a move it said should give it more control over retail gas prices and investment in the sector.
"I am firmly convinced that EPH is the most suitable strategic partner for the government and for SPP," EPH Chairman Daniel Kretinsky said.
"Our contribution will enable (SPP) to successfully face up to the negative trends in the natural gas sector."
SPP operates 2,270 km of pipeline taking Russian gas to Europe. But the link's importance has dropped since the opening of the Nord Stream link that takes Russian supplies directly to Germany, bypassing transit countries like Ukraine and Slovakia.
In 2011, SPP's transit arm shipped 74 billion cubic meters of gas, about 15 percent of the total EU demand. SPP, which also sells gas to the Slovak market, has a long-term supply deal with Gazprom until 2028.
Slovak Prime Minister Robert Fico, in power since April, had been at odds with E.ON and GDF since 2006, accusing them of squeezing the company for profits and submitting unjustified requests for higher regulated prices for households, which SPP had defended as justified.
EPH, which comprises more than 30 energy companies, has built itself up through acquisitions.
It said the SPP deal was the largest ever Czech foreign investment. The 2.6 billion euro price, or around 66.5 billion Czech crowns, is near what central Europe's largest utility CEZ (CEZP.PR) has invested abroad since 2005, a total 71.9 billion.
EPH aims to compete with the likes of CEZ, but has relied on CEZ for some big acquisitions and is also bidding for coal-fired power plants CEZ has put on offer to meet EU regulatory demands.
The SPP acquisition is a step into the gas business. Its electricity and heating business has capacity of 1,477 MW and 4,744 MW, respectively. The company had sales of 39.4 billion in 2011, compared to 209.8 billion for CEZ that year.
EPH is 44.44 percent owned by Kellner's PPF investment group, which last week agreed to sell its 49 percent in an insurance joint venture with Italy's largest insurer Generali (GASI.MI).
Czech-Slovak investment J&T holds a 37.04 percent share in EPH, while Kretinsky owns the remaining stake.
($1 = 0.7482 euros)
(Additional reporting by Christian Plumb, Jana Mlcochova and Martin Santa; Writing by Jason Hovet; Editing by Mark Potter and Sophie Walker)