Fortum and the City of Stockholm agree on Birka Energi transaction

Fortum and the City of Stockholm have signed an agreement for Fortum to purchase Stockholm’s 50% interest in Birka Energi AB for a total price of SEK 14.5 billion (EUR 1.5 billion). The City of Stockholm retains a 50% economic interest in Birka Energi’s district heating business (Birka Värme). The deal is an important step in Fortum’s Nordic strategy. For the City of Stockholm it is part of its strategy to develop Stockholm.

 

The acquisition of Birka Energi consolidates Fortum’s position as one of the leading players in the Nordic electricity market and is a key step in its strategy to expand its core power and heat business. For the City it means executing one of the largest privatisations in Sweden of a municipality-owned company.

 

The transaction allows Fortum to combine its own power and heat operations with Birka Energi’s generation assets, customer base and networks and creates potential annual synergies of up to EUR 60 million by 2004. The acquisition is expected to be earnings enhancing in 2003. The strength and strategy of Fortum also enables the further development of Birka Energi to the benefit of customers, employees and owners.

 

 “This is an important step in the Nordic strategy we are pursuing. We are delighted to be able to deliver on the strategic commitments we have made,” said Mikael Lilius, President and CEO of Fortum.

 

“Birka Energi is a fine company and is a perfect fit for the group. Combined with Fortum’s other operations it gives us a leading position in the Nordic market. Together Birka and Fortum will be a very competitive combination and an attractive supplier of electricity for both industrial and retail customers in the Swedish market. ”

 

“Full retail choice for customers makes it unnecessary for the City of Stockholm to own an electricity company. Instead we can now reap the full value of a business that will continue to flourish under a dedicated industrial owner. This deal is good for the taxpayers and energy consumers of Stockholm. It limits the City’s business risks and releases capital that can be invested into the development of Stockholm and its infrastructure.” Carl Cederschiöld, Mayor of Stockholm, said.

 

By retaining a 50% economic interest in Birka Värme, the City of Stockholm will continue to have influence over expansion and development of the district heating business.

 

 “Our long and successful co-operation with Fortum assures us that the co-operation in heat will be successful and to the benefit of Stockholm. I am also convinced that Birka will continue to develop as a first-class energy company with Fortum as owner,” Carl Cederschiöld said.

Transaction Overview

Fortum expects to acquire all of the outstanding shares of Birka Energi that it does not already own for a cash consideration of SEK 14.5 billion (EUR 1.5 billion). In addition Fortum will assume approximately SEK 18.6 billion (EUR 1.9 billion) of net financial debt and minority interests.

 

The integration of Birka Energi with Fortum and the close and complementing relation between the two companies creates significant potential synergies and cost savings in both organisations. Fortum has estimated the annual value of these synergies to be up to EUR 60 million by 2004. Synergies will include integrated generation dispatch, joint purchasing and savings achieved by sharing best practices in operation and maintenance and administrative functions. The considerably expanded customer base strengthens Fortum’s opportunities to grow and develop and provides an even clearer focus on customer service excellence.

 

The leaders of the parties of the majority coalition of Stockholm have stated their support for the agreement. The purchase is primarily subject to approval by the Stockholm City Council and by the European Commission. Completion of the purchase is expected in the first quarter of 2002.

 

The transaction will be financed through bank credit lines. Fortum plans to maintain the existing financing of Birka Energi and is committed to manage Birka in full recognition of its obligations to bondholders and other lenders. Fortum intends to accelerate its programme of non-core divestitures and the group may seek financing in the capital markets in due course.

Stockholm Committed To District Heat Business

The City of Stockholm has an ongoing strategic interest in Birka Energi’s district heating division, Birka Värme. The City of Stockholm will retain a 50% economic interest in Birka Värme through the issue of new preference shares.

 

The City of Stockholm and Fortum will have equal representation on the Board of Birka Värme, and decisions on strategic issues will be made by qualified majority. The operations of the business will be integrated with the rest of Birka Energi. Birka Värme will continue to be fully consolidated by this group.

 

Birka Värme will be capitalised with SEK 13.7 billion (EUR 1.4 billion) of net financial debt, primarily intra-group loans, out of total Birka Energi consolidated net financial debt of SEK 29.2 billion (EUR 3.0 billion). The business plan envisages that Birka Värme’s cash flows are sufficient to service the intra-group loans.

 

Fortum and the City of Stockholm expect to continue their excellent working relationship at Birka Värme. A shareholders’ agreement, valid until 2015, gives the City the right, but not the obligation, to sell its holding in Birka Värme from 2006.

Birka Energi

Birka Energi AB is the third largest energy company in Sweden with 4,484 MW of hydroelectric, nuclear and other electricity generation capacity, 830,000 retail electricity customers, 15 electricity distribution areas with 900,000 customer connections and a district heating network serving 6,800 customers mainly in the Stockholm area. For the year ending December 31, 2000, Birka Energi had sales of SEK 13,420 million and operating profit of SEK 2,638 million. The average number of employees was 3,388.

Fortum

Fortum, headquartered in Espoo, Finland, is one of the Nordic countries' leading energy companies. Its business ranges from production of oil, gas, power and heat to refining, distribution and marketing, and to energy related services. Fortum is the market leader in the production and marketing of high-quality pro-environmental oil products in the Baltic Rim. In electricity distribution and sales, and in power and heat generation, Fortum is one of the two largest companies in the Nordic market. For the year ending December 31, 2000, Fortum had net sales of EUR 10,614 million and operating profit of EUR 906 million. The average number of employees was 16,200. Fortum’s shares are quoted on the Helsinki Exchanges.

 

 

Contacts:

Fortum

Mikael Lilius, President & Chief Executive Officer                                  +358 10 452 9100

Juha Laaksonen, Chief Financial Officer                                                 +358 10 452 4519

City of Stockholm

Carl Cederschiöld, Mayor                                                                                           +46 8 508 29 878

Jörgen Kleist, Chief Executive Officer                                                    +46 8 508 29 878