March 22, 2017 / 5:22 PM / 4 months ago

Finland's Fortum vows to keep a cool head in M&A pursuit

Fortum CEO Pekka Lundmark listens during an interview at company headquarters in Espoo, Finland, March 22, 2017.Tuomas Forsell

HELSINKI (Reuters) - Finland's largest utility Fortum (FORTUM.HE), on the look-out for deals for years, is striving to clinch a sizable acquisition this year, its chief executive said on Wednesday.

The utility firm, 51-percent-owned by the state, sold its Nordic power distribution grids for 9.3 billion euros ($10 billion) in 2014 and 2015 and since then has announced only a handful of small acquisitions while the competition for Europe's power generation assets gets tougher.

In November, Fortum said it aimed to spend a couple of billion euros quickly in Europe's power generation and "city solutions" assets, including waste-to-energy and biomass business.

"Our first priority is generation consolidation in Europe... 2017 remains our target (for a deal), no doubt about that," CEO Pekka Lundmark told Reuters in the company's high-rise head office by the Baltic Sea.

Some investors are growing impatient for the cash to be put to use while others are worried that as time ticks on, Fortum is more likely to rush into an overpriced deal.

Lundmark said the company would be careful in its choice and was not welded to the end of the year deadline.

"There is a lot of money around looking for these kind of assets, and it is clear that the most attractive targets are expensive... If no good deals come in sight, we will consider other alternatives."

Analysts have said that German firm Uniper's (UN01.DE) Swedish hydro power assets might be of interest to Fortum, but Lundmark declined to name any specific targets.

FILE PHOTO: The headquarters of Fortum, the largest electricity distribution operator in the Nordic region, is seen in Espoo, Finland December12, 2013. Antti Aimo-Koivisto/Lehtikuva/File Photo via REUTERS

"There are lots of interesting assets out there... The fact that a big deal is yet to come should indicate that... we are prepared to wait for a suitable one."

Fortum last year generated 28 percent of its power through hydro plants, 32 percent by nuclear units and 33 percent with natural gas, putting its carbon exposure among the lowest in Europe compared to other utilities.

Lundmark said Fortum was particularly looking for hydro power assets - seen as one of the most valuable renewable energy sources worldwide - but he did not rule out increasing Fortum's nuclear portfolio either.

For the long term, Fortum is simultaneously looking for smaller investments in future technologies, Lundmark added.

"A watched pot never boils... It's good that they are not in a rush with a big deal, but something should be done with the cash," said Mika Heikkila, portfolio manager at Taaleri Wealth Management who counts Fortum as one of his fund's largest investments.

"One must have trust in the management to hold this stock."

Lundmark was hired in 2015 from crane maker Konecranes (KCRA.HE). In his first year at Fortum, the company's core operating profit dropped 20 percent to 644 million euros due to high Nordic water reservoirs that pressured power prices.

($1 = 0.9274 euros)

Editing by Elaine Hardcastle

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