Fortum sells Swedish electricity business for $6.9bn

May 2015 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Finnish energy company Fortum Oyj has agreed to sell its Swedish electricity distribution business (Fortum Distribution AB) to a consortium comprised of Swedish national pension funds Första AP-Fonden and Tredje AP-Fonden, Swedish mutual insurance and pension savings company Folksam and the international infrastructure investor, Borealis Infrastructure Management Inc.

Fortum’s electricity distribution business in Sweden owns and operates approximately 71,000 km of electricity distribution and regional networks and distributes electricity to some 906,000 customers. The volume of distributed electricity in distribution network was 13.7 TWh in 2014. Fortum’s market share of local electricity distribution in Sweden is approximately 17 percent.

Key figures for Fortum’s distribution business in Sweden in 2014 are: sales of €634m, comparable operating profit of €235m, comparable EBITDA of €365m, net assets at period-end of €2.6bn and capital expenditure of €134m.

The consortium members have over 20 years of combined experience in the acquisition and management of infrastructure assets and are committed to a long-term, stable and supportive ownership of Fortum’s distribution business.

All parties are keen to stress that the transaction will have no immediate effect on customers.

“A competent and experienced buyer with a long-term commitment to infrastructure and customer service is a very good solution for our 906,000 distribution customers in Sweden,” said Timo Karttinen, Fortum’s interim president and CEO. “At the same time, this is very good for our some 390 distribution employees, who will transfer with the business at closing with the existing terms of employment. The business is financially and operationally in a very good shape. It will now have a new owner that will develop the business as a core business.”

The transaction concludes the divestment of Fortum’s distribution business activities. The total consideration from divestments in Finland, Sweden and Norway will be approximately €9.3bn on a debt and cash-free basis with approximately €6.3bn sales gain booked during 2014 and 2015. The strategic assessment of the future alternatives of Fortum’s electricity distribution business was originally made in 2013.

“On behalf of Borealis Infrastructure, we are very pleased to announce our first investment in Sweden alongside like-minded, long-term Swedish investors,” said Michael Rolland, chief investment officer of OMERS Private Markets (Infrastructure and Private Equity). “Sweden’s strong regulatory framework and firm commitment to the rule of law make it an ideal place to invest. Fortum Distribution AB provides a strong match for OMERS long-term obligations to our plan members, and represents precisely the kind of rare, high-quality asset that fits squarely with OMERS strategy to increase its exposure to infrastructure.”

Fellow investor Folksam, in the guise of president and CEO Jens Henriksson, said: “This is a rare investment opportunity that suits Folksam with subsidiaries particularly well, as we are a long term investor with long term obligations towards our customers. Also, the investment adds to our different asset portfolios, since it improves risk diversification and expected rate of return.”

Looking to the future, Timo Karttinen said: “After the divestment of its distribution businesses Fortum will concentrate on the growth and development of our core businesses, based on our competences: CO2-free hydro and nuclear power generation and efficient combined heat and power (CHP) production. We will also continue to develop electricity sales and related customer solutions to our 1.3 million electricity retail customers.

“We continue to have a strong presence in Sweden, and remain committed to develop our business in the Nordic countries while looking for growth opportunities in line with our strategy.”

Fortum expects to complete the divestment process during the second quarter of 2015 subject to all the necessary regulatory approvals as well as customary closing conditions.

Fraser Tennant