PPL to buy US unit of GermanyÔÇÖs E.ON

Pennsylvania-based PPL has agreed to buy the US electricity and natural gas unit of Germany's E.ON, the world's largest utility by sales, for $6.7 billion (Ôé¼5 billion) in cash.  The deal, which is the largest to take place in the power sector in the last two and a half years, will see PPL gain two utilities in the state of Kentucky supplying more than 1.2 million customers, as it increases its focus on the utility side of its business. The Louisville Gas and Electric Company and the Kentucky Utilities Company together form the core business of E.ON US. In 2009 E.ON US delivered 32.4 billion kilowatt hours of power and 12.6 billion kilowatt hours of natural gas to its customers. The company employs approximately 3,100 employees and has a turnover of Ôé¼1.8 billion (approximately $2.4 billion). PPL intends to operate the Kentucky utilities as a subsidiary, maintaining the headquarters in Louisville. The company, based in Allentown, Pennsylvania, currently controls 12,000 megawatts of capacity in the US, sells energy on the main American markets and supplies electricity to four million customers in the US and the UK. However, PPL said the acquisition will transform it into a more geographically diverse utility holding company with combined annual revenues of about $10 billion, serving nearly five million electricity customers in the US and the UK, and owning or controlling about 20,000 megawatts of US electricity generating capacity. For D├╝sseldorf-based E.ON, the sale forms part of its wider strategy to streamline operations and cut debt. The company confirmed that its renewable energy business in the USÔÇöE.ON Climate & Renewables, North AmericaÔÇöis not affected by the transaction. In a statement, the German company said it considered the price achieved for E.ON US to be ÔÇ£very attractiveÔÇØ. The transaction is expected to close by the end of this year. Commenting on the deal, James H. Miller, PPLÔÇÖs chairman, president and chief executive officer, said: ÔÇ£This is a transformational, value-rich transaction, which will immediately improve PPLÔÇÖs business mix by adding high-performing regulated utility operations to our already strong combination of excellent regulated businesses and our high-value competitive generation fleet. ÔÇ£We are adding scale, creating a much stronger and more diversified enterprise while providing additional opportunities for regulated-business growth and, importantly, retaining the upside benefits of our competitive fleet when wholesale power market prices improve. Clearly, for PPL shareowners, this is the right deal at the right time.ÔÇØ Miller went on to say that the transaction takes advantage of ÔÇ£a rare opportunity to add to PPL the experience, talent and values of an organization with a proven track record of cost-effective operations, a strong focus on customer service and constructive regulatory relationships.ÔÇØ In a separate statement, Wulf H. Bernotat, CEO of E.ON, said: ÔÇ£With PPL as new owner our employees in Kentucky gain a new and strong partner for the future. E.ON on the other hand wins more clarity in our portfolio and valuable room for organic growth.ÔÇØ E.ON acquired the two Kentucky utilities in 2003 as part of its $15 billion takeover of UK-based Powergen. However, the company began to accumulate debt as it expanded into new markets including Spain, Italy, France and Russia, between 2007 and 2008. E.ON said that the sale of E.ON US means that it has already surpassed its target to divest at least Ôé¼10 billion worth of assets by the end of this year. By the end of 2009, the company had already divested around Ôé¼6 billion in assets, including its power-transmission grid in Germany and a holding company that bundles stakes in around 100 German municipal utilities. However, other European energy companies have been investing in the US, rather than turning away from it. In 2008, SpainÔÇÖs largest utility, Iberdrola, acquired Energy East Corp., which owns utilities in north-eastern US, while last year Electricit├® de France (EDF) bought nearly half of the nuclear business of Constellation Energy Group Inc.