Bloomberg-8/15
Veba, RWE May Sell E-Plus Venture to Focus on Energy; Buyers Queuing Up
By Sonja Heizmann
Frankfurt, Aug. 15 (Bloomberg) -- Veba AG and RWE AG,
Germany's two biggest utilities, are likely to shed E-Plus,
their unprofitable mobile phone venture, as they narrow their
focus on their energy-related assets, analysts said.
France Telecom SA and Vivendi SA bid for the 17.2 percent
of E-Plus that Vodafone Airtouch Group Plc is selling, Der
Spiegel magazine reported last week. Since the offers value the
venture at as much as 30 billion deutsche marks ($16.4 billion),
Veba and RWE may do better to cash in on their 60.25 percent
stake.
A sale would give the utilities funds to expand abroad and
allow them to cut costs as competition in the German electricity
market stiffens after its deregulation last year. So far this
year, they've raised $2 billion selling Otelo, a fixed-line
network, and Telecolumbus, Germany's No. 2 cable TV grid.
``Utilities have other worries right now and the two
companies could use the cash to expand their energy
businesses,' said Sabine Schauer, an analyst at BHF-Bank in
Frankfurt who rates Veba a ``buy' and RWE a ``hold.'
RWE this month said it plans to invest about $27 billion
over the next ten years to buy other energy companies and raise
earnings amid falling margins. Veba, which last month agreed to
buy an 87 percent stake in Dutch electricity provider NV
Electriciteitsbedrijf Zuid-Holland for about 930 million euros,
has also said it's on the lookout for more energy purchases.
Vodafone Forced to Sell
Speculation about the future ownership of E-Plus first
arose when Vodafone decided to shed its stake to comply with
European Union antitrust demands following its $77 billion
takeover of AirTouch Communications Inc. The purchase won
approval in June.
Vodafone said there's no deadline for the sale of its
stake. Bank Sal. Oppenheim Jr & Cie. is reviewing the bids.
BellSouth Corp., the No. 4 U.S. local phone company, holds
22.5 percent in E-Plus and has a preemptive right to acquire
Vodafone's stake.
Speculation was also spurred by Deutsche Telekom AG's 8.4
billion-pound purchase ($13.5 billion) of One 2 One Ltd., the
smallest of the U.K.'s four cellular phone companies.
As well as helping set a price tag on cellular assets, the
transaction reduced the number of available pickings in the
European mobile phone market, where users are set to rise to 50
percent of the population in 2001, from 24 percent at the end of
1998, according to Salomon Smith Barney.
Millstone
Selling E-Plus, which entered Germany's mobile market three-
and-a-half years after leaders Mannesmann Mobilfunk GmbH and
Deutsche Telekom, would remove a millstone from the utilities'
earnings. Its late start forced E-Plus to repeatedly slash
prices to gain new customers, eating into margins.
``Considering how bad things looked two years ago, it's a
very decent price and a good opportunity to get out of E-Plus,'
Schauer said.
Even without E-Plus, which doesn't expect to make a profit
until 2001, the two utilities are finding it tough to maintain
earnings growth.
RWE, with a market value of 21 billion euros, reported a 4
percent drop in revenue from continuing operations for fiscal
1999, weighed down by lower-than-expected energy sales. Veba's
electricity unit, which accounts for two-thirds of earnings, saw
operating profit drop 5 percent in the second quarter.
Veba said last week E-Plus's rising number of customers and
``operating improvements' led to ``clearly positive' first-
half earnings before interest, taxes, depreciation and
amortization.
E-Plus, which sees sales this year more than doubling from
last year's 1.8 billion marks, has 2.8 million customers. In
comparison, Mannesmann AG's mobile phone business counts 7.3
million customers and Deutsche Telekom AG's cellular service has
7.1 million.
Foothold in Germany
Should it buy E-Plus, France Telecom would gain a foothold
in the German market, a move it's keen to make after Deutsche
Telekom's failed bid for Telecom Italia SpA soured relations
between the long-term partners. France Telecom said last month
it plans to sell its 2 percent stake in the former German
monopoly.
``France Telecom has a strategic interest in Germany after
Telekom's failed bid for Telecom Italia,' said Frank
Wellendorf, an analyst at WestLB Panmure in Dusseldorf. With E-
Plus ``it would be buying into a booming mobile phone market.'
If the German and France phone companies end their
partnership, they would be free to pursue their own expansion
plans. So far, France Telecom has resisted big acquisitions in
favor of partnerships and stakeholdings.
France Telecom Chief Executive Michel Bon and other
executives have repeatedly said that they're studying every
possible opportunity available in Germany, the last major hole
in the company's European network.
``We're very interested in filling that gap,' a
spokeswoman said.
France Telecom and Vivendi both declined to comment on the
report of their interest in E-Plus. RWE and Veba say they remain
committed to the venture.
Vivendi's Chief Executive Jean-Marie Messier has also
pledged further international expansion of the company's
telecommunications business.
The world's No. 1 water company is transforming itself into
a communications company. It expects media and communications,
including phone services, publishing and multimedia, to account
for half of operating profit in 2001, up from 20 percent in
1998.
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