2nd UPDATE:E.ON Boosts French Position Via EDF,EnBW Asset Swap

German utility E.ON AG (EOAN.XE) said Thursday it has agreed to swap assets with Electricite de France SA (EDF.FR) and EnBW Energie Baden-Wuerttemberg AG (EBK.XE), bolstering its position as France's third largest power company.

Under the deal, E.ON will receive 800 megawatts of nuclear power capacity in France from EnBW. Germany's largest utility by market value and sales will further acquire the 35% stake it doesn't already own in SNET from EDF and Charbonnages de France, making it the sole owner of SNET.

EnBW will receive nuclear power drawing rights from reactors in Germany. In addition, it will also acquire E.ON's 50.4% stake in a coal-fired power plant in Rostock, which reflects a power generation capacity of 256MW, and 159MW in drawing rights from the Buschhaus coal-fired power plant.

The completion of the transaction is still subject to approval of the companies' supervisory boards and antitrust authorities, E.ON said.

"By fully taking over SNET we are now able to better bundle our activities in France and tap valuable synergies," E.ON Chief Executive Wulf Bernotat said in a written statement.

E.ON acquired 65% in SNET in 2008 following its failed bid for Spain's Endesa SA (ELE.MC). SNET was previously owned by Endesa but Italy's Enel SpA (ENEL.MI), which beat E.ON in the race for control of Endesa, sold SNET and other assets in Italy and Spain to the German company.

For EnBW, around 45% of which is owned by EDF, the asset swap helps further increase its power generation capacity in its home market Germany by approximately 1.2 gigawatts.

"We have always emphasized that increasing and strengthening our generation capacity in Germany is one of our central strategic goals," EnBW Chief Executive Hans-Peter Villis said.

UniCredit credit analyst Christian Kleindienst in a research note Thursday said the German general election last Sunday, which the pro-nuclear energy Christian Democrats and Liberals won, may have paved the way for the asset swap between E.ON, EDF and EnBW.

The new center-right government that will likely emerge from coalition talks starting next week is widely expected to extend the operating lives of Germany's 17 nuclear reactors, all of which are currently foreseen to be shut down, one-by-one, by around 2021.

EnBW relies heavily on nuclear power and has been looking to diversify its power plant fleet due to the planned nuclear phase out. At the end of 2008, EnBW's share of German nuclear power generation was just under 60%.

Thursday's asset swap with EDF and EnBW is part of a deal E.ON struck with the European Commission in 2008. At the time, E.ON committed to selling 5GW of power generation capacity and its German power transmission grid. In return, the E.U. dropped two antitrust cases against the company.

The E.U. had targeted E.ON over concerns that the German utility was abusing its dominant position in the German power generation and electricity grid market.

By swapping assets with EDF and EnBW, E.ON has now divested more than 4.4GW of generation capacity. Previous deals were struck with Norway's Statkraft, France's GDF Suez SA (GSZ.FR), Austria's Verbund AG (VER.VI) and EnBW.

The divestitures are also part of E.ON's plan to shed assets worth at least EUR10 billion by the end of 2010, as it bids to refocus its business and reign in debt which surged after a two year spending spree across Europe.

At 1109 GMT E.ON shares traded 0.3% lower at EUR28.89 in line with a softer German bluechip DAX index.

Company Web sites: www.eon.com; www.edf.com; www.enbw.com

-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503; jan.hromadko@dowjones.com

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