VitalGaz, Romania’s largest natural gas distributor, was sold by its main shareholder (the Romanian Post-Privatisation Fund – FRPP) to the US energy investment group Pelagas Ltd.
The $10m deal was closed yesterday, with Pelagas buying the 72.4% stake held by FRPP and a smaller stake, owned by one of the two main founding members of VitalGaz. The other founding member, Dan Alesandru, will retain a minority stake and his general manager position.
The transaction’s value also includes a capital increase to be operated by the Americans.
Pelagas is a company specialising in energy and resources investments and is owned by Ronald S. Lauder, who already has strong operations in Romania, in the media field.
Ronald Lauder, his brother Leonard and the Lauder family control one of the world’s leading cosmetics groups – Estée Lauder, Inc. Ronald Lauder is the largest and controlling investor in Central European Media Enterprises (CME), a listed company that holds significant stakes in several European media groups, among which Media Pro International, which includes TV and radio stations Pro TV, Acasa and ProFM.
Pelagas is already involved in several international energy projects, but VitalGaz is its first investment in Romania.
“We chose Romania as the starting point for our expansion in the energy area and opted for the acquisition of VitalGaz due to the company’s present situation, its prospects and the performing management,” Randall Atkins, managing director at Pelagas, told Ziarul Financiar.
VitalGaz was established in 1998 under the name of Regev-Instal by two Romanian businessmen, following the Romanian State’s decision to lease part of the distribution services for natural gas and drinking water. The company’s operations have been soaring since 2000, when FRPP bought the main stake. FRPP, one of the largest investment funds in Romania, has invested some 3.8 million euros in the company, which has come to provide natural gas and drinking water to 22,000 households in Brasov County and the outskirts of Bucharest. VitalGaz posts turnover worth several million dollars.
“VitalGaz has reached a development stage where it needs a strategic investor and Pelagas can provide the necessary financial support and expertise required by the company to grow. We are pleased with the yield of this business: we proved investments in smaller companies could be successful in Romania, as well,” says Robert Luke, general manager for Romania of GED Capital Development, the company managing FRPP. The 44 million euro fund was established especially for Romania in 1998 and has invested in several major Romanian companies such as Sicomed Bucharest (drugmaker), PCNET (IT), Continental (hotels), IRIDE (real estate) and VitalGaz over the last few years.
Pelagas is planning to invest heavily to boost the number of VitalGaz customers to 100,000 in the next three years and use the company as a starting point for developing other businesses in Romania and in the region.
“We are interested in the business opportunities in infrastructure, utilities and energy. If there are such opportunities, financial resources would be available,” Atkins specified.
The Pelagas manager did not rule out the acquisition of other private natural gas distributors as a development opportunity in Romania, either.
“We plan for an aggressive development in the field of natural gas and it can be done in three ways: development within the concessions currently held by VitalGaz, acquiring other concessions or buying another private distributor. We will soon decide which one is the best,” Randall Atkins said.
The Romanian gas distribution is currently ruled by the two large state-owned operators, Distrigaz Sud and Distrigaz Nord. The deregulation of the market, however, is set to gradually increase over the next few years to more than 30%, so that the private operators (Congaz Constanta, Gazvest Arad, Condmag Brasov) will have more opportunities to grow, until they are ripe enough for a takeover by the major international companies in this industry, such as Gazprom or Ruhrgas or even Pelagas.
“We do not see VitalGaz as a short-term or even medium-term investment in the gas business in Romania. We actually consider ourselves to be a long-term strategic investor and are not contemplating a further sale of the company,” Atkins concluded.