The German conglomerates Veba and VIAG finally tied the knot yesterday in a marriage creating the biggest power utility in Germany and the third-biggest in Europe after EDF in France and Enel in Italy.
After weeks of often difficult negotiations, the companies announced the terms of one of the biggest industrial tie-ups in Germany and a move which is expected to accelerate the major realignment already underway in German industry.
The combined company will focus on the core businesses of energy and speciality chemicals, usurping RWE as the biggest electricity supplier in Germany and forming one of the biggest makers of speciality chemicals in the world.
In fact, the merger represents a remarkable shift in strategy for both partners, who had each diversified into telecommunications and other areas in the 1990s in a bid to reduce their reliance on energy.
But with neither of their telecommunications businesses making a profit, the two are now hoping to secure a slice of the newly deregulated power markets both in Germany and Europe.
The tie-up is in fact a takeover of VIAG by Veba. VIAG shareholders will receive one Veba share for every 2.8 VIAG shares held. Veba shareholders will keep their shares, giving them a 67-percent majority in the new entity, while VIAG will hold 33 per cent. The regional state of Bavaria, the biggest shareholder in VIAG with 25.1 per cent, has agreed to sell a stake of 10 per cent to Veba for €1.592 billion (£1.25 billion) plus a premium of a maximum of €104 million depending on the development of VIAG's share price.
The financial markets thought the terms of the merger as a good deal for Veba, but a bad one for VIAG.
Veba was the biggest gainer on the Frankfurt stock exchange yesterday, with its shares rising to an intraday high of €55.90 in electronic Xetra trade, a rise of €2.40 or 4.49 per cent from the closing price on Friday.
By contrast, VIAG was the biggest loser, with its shares showing a loss of 3.21 per cent at €19.60. The merger will create annual synergies of at least €800 million by 2002, of which €700 million will be saved in the energy division and €100 million in the speciality chemicals business.
