German Coal Exit Could Slow Fortum Plan for Uniper Takeover

(Bloomberg) -- Europe’s push to scrap use of coal as a power generation fuel could make Fortum Oyj think twice before launching a bid for a full takeover of Uniper SE, one of the continent’s biggest burners of the dirtiest fossil fuel.

Fortum, which owns a 49.99 percent stake in Uniper, on Tuesday said it had ended its long-running feud with the German company, with the departure of Uniper’s top management paving the way for a deeper relationship between the two. Analysts and investors are already speculating on whether Fortum will seek to install its own management team, a move that could herald the Finnish utility taking a majority of the Dusseldorf-based utility.

That decision has been somewhat complicated by European government moves to ditch coal, since Uniper’s plants burn the fuel that is in the cross-hairs of politicians looking to make good on pledges to slash greenhouse gases. France, Germany and the Netherlands have all signaled they’re looking to close coal plants operated by Uniper.

The phase-out plans in Germany and beyond “create a huge uncertainty over Uniper’s future capacity mix and what compensation, if any, the company can get in return for mandatory closures,” said Elchin Mammadov, an analyst at Bloomberg Intelligence. “This does mean that Fortum is unlikely to rush with a new takeover bid any time soon.”

Germany needs to provide clarity as soon as possible, even if the coal exit is no surprise, said a Fortum spokeswoman. It’s a question of when, rather than if, and we hope that the government will swiftly finalize the details, she said.

“We believe that Fortum is likely to wait for more clarity on the German coal and lignite phase-out compensation,” JPMorgan Chase & Co. analyst Vincent Ayral wrote in a research note.

Germany’s decision to quit coal by 2038 means Uniper will have to negotiate compensation for the premature closure of its German coal plants. Those plants include Datteln-4, a power station block that’s never entered service due to ongoing structural problems with its boiler. Most analysts don’t expect Uniper to be fully compensated for the plant, adding to questions around the value of the German company’s assets. The company has spent more than a billion euros on the plant so far.

Read more here about how Uniper and Fortum are turning a new leaf in their relationship

Uniper is Europe’s fifth largest greenhouse gas emissions polluter in the power sector based on 2017 data, according to Sandbag, a climate change think tank in London.

France and the Netherlands are also pursuing policies that raise question marks over the value of Uniper assets. Uniper is in talks to sell its energy assets in France before the government shuts coal-fired plants, with valuations yet to be determined. Uniper has also said it will seek compensation for forced closure of one of its Dutch plants, with eventual compensation payments also unknown.

That clarity is unlikely to come any time soon. While Germany economy minister Peter Altmaier has said Berlin would like to bring forward legislation on the coal exit, many industry insiders are braced for years of negotiations on specific compensation, with Uniper’s Datteln-4 plant a particularly complicated issue to resolve.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

©2019 Bloomberg L.P.