Brussels approves Veba/Viag merger

The European Commission on Tuesday approved the merger of Veba and Viag, the German electricity groups, in a move that could lead to further consolidation in the European and German utility markets.

It also released details about the RWE/VEW merger, under scrutiny by the Berlin-based Federal Cartel Office, which will publish its decision by July 10. The link-ups will create Europe’s third and fourth largest electricity companies respectively. Under the agreement, the four groups will sell most of their eastern German assets, including their stakes in Veag, the former eastern monopoly, and the Laubag mining group. Veba/Viag’s 49 percent of Berlin-based Bewag and RWE’s Envia distribution business will also be sold.

The four also agreed to buy power from Veag at market price through their eastern German suppliers for seven years, cementing Veag’s position as Germany’s third largest electricity company. In a move aimed at severing all links between the two merged entities, Veba/Viag will receive RWE/VEW’s holdings in Gelsenwasser, Ruhrgas and Gasag, in exchange for their 20.4 percent stake in VEW.

“There was a case for the commission to be tougher, but it has decided that competition in Germany was sufficient,” said Vicent Gilles, analyst at UBS Warburg. Some analysts said the relatively lenient conditions could help discussions between Gerhard Schroeder, the German chancellor, and the electricity companies over the phased closure of Germany’s 19 nuclear power stations, which started in Berlin yesterday night.

The approval could also be the prelude to larger M&A transactions in the sector. E.ON, as Veba/Viag will be known when it starts trading on the Frankfurt stock exchange next week, has held talks with Suez Lyonnaise des Eaux and Spain’s Endesa. “With these mergers going ahead, many deals between Germany’s 900 utilities that had been put on hold are also likely to be resuscitated,” said Lueder Schumacher, analyst at Deutsche Bank. Reuters