Sept. 18 (Bloomberg) -- Fortum Oyj, the second-largest Nordic utility, may make acquisitions in Europe after amassing assets in Russia and Scandinavia, Chief Executive Officer Tapio Kuula said.

“When there are attractive opportunities, we will look at mergers and acquisitions,” Kuula said yesterday in an interview, without identifying any potential targets. “In Europe in the power and heat sector, the restructuring will continue. This is quite a fragmented industry still.”

European utilities have bucked a trend for fewer acquisitions as changes in European Union law provide incentives for combining. Cost-cutting and falling stocks have also made targets cheaper. Mergers and takeovers in all industries totaled $2.48 trillion last year, down 39 percent, as a credit squeeze hampered financing, according to data compiled by Bloomberg.

“There’s no utility in Europe where you can rule out the smaller acquisitions -- they have the firepower,” Ingo Becker, an analyst at Kepler Capital Markets with a “reduce” rating on Fortum, said today. “But acquisitions in the Nordic region are tough as many assets are state-owned.”

Fortum, 50.8 percent-held by the Finnish state, completed the acquisition of a 94 percent stake in Russian power generator OAO TGK-10 last year, renaming the company OAO Fortum. The Nordic utility, whose 16.3 billion-euro ($24 billion) market value makes it Finland’s largest company after Nokia Oyj, has also made recent purchases at home and in Sweden and Norway.

Vattenfall Sells Assets

Vattenfall AB, the Nordic region’s largest power utility, said in February that it aims to get 1.5 billion euros “in the short term” from selling its German high-voltage grid and other unspecified assets. The Stockholm-based company, which agreed to buy Dutch competitor Nuon NV this year, joins rivals in selling assets to pay down debt.

E.ON AG and Electricite de France SA, Europe’s largest utilities, are seeking to sell or swap a total of more than 15 billion euros of assets to cut borrowing and satisfy regulators after buying companies in countries from Spain to the U.K.

Fortum is most likely to seek acquisitions in the Nordic region, according to Kepler’s Becker. District heating assets may be on the company’s shopping list, he said.

Finnish Nuclear Growth

The Finnish utility owns a 25 percent share in a nuclear station being built in Finland and has sought government permission to build another on the nation’s southeastern coast. Fortum, Teollisuuden Voima Oyj and a group led by Germany’s E.ON are vying to get state approval for atomic plants in Finland.

“I feel pretty sure that there will be a new nuclear power plant, or plants, coming in Finland,” Kuula said at Fortum’s headquarters in Espoo. “It’s more a question of how many.”

Kuula opposes a Finnish government proposal to take as much as 330 million euros in a new tax on utilities’ “windfall” profits. Fortum has said it would end up paying half that amount.

“It would be a very arbitrary taxation,” Kuula said. “I also see quite big legal difficulties in that kind of tax.”

Fortum’s annual net income more than doubled in the past five years to 1.54 billion euros in 2008. First-half earnings were little changed at 695 million euros on sales of 2.83 billion euros.

The purchase of TGK-10 gave Fortum eight power stations in central Russia. Fortum also completed the purchase of E.ON Finland Oyj in 2006, increased its stake in Norwegian energy company Hafslund ASA in 2003 and bought Birka Energi in Sweden in 2001.

Kuula, 52, took over as CEO in May, replacing Mikael Lilius who stepped down after politicians objected to his 3.02 million- euro pay packet last year. Kuula had previously run Fortum’s Russian operations. The government has since put a cap on earnings for executives at state-controlled companies.

“In the longer run, I think what really matters is that we do things properly,” Kuula said. “That will help also to improve our image.”

To contact the reporters on this story: Chad Thomas in Helsinki at cthomas16@bloomberg.net; Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

Last Updated: September 18, 2009 06:01 EDT