RWE Defends Sale of Dea Unit Against Shareholder Criticism

RWE AG, Germany’s second-largest utility, defended the planned sale of its Dea oil and gas unit against criticism from shareholders, who accused management of sacrificing growth for quick returns.

“You must not allow the sacrifice of mid-term growth for short-term profit,” Ingo Speich, a portfolio manager at Union Investment GmbH, said today at the annual general meeting in Essen. RWE shouldn’t sell Dea if the price isn’t right, said Speich, whose company is a top-10 holder of the utility. Others warned against selling off the “family silver.”

RWE wants to raise as much as 5 billion euros ($6.5 billion) from Dea and use the cash to reduce debt, a person familiar with the matter said last month. The sale of the unit, which pumps oil and gas in the U.K., Germany and Norway, will enable the utility to bolster cash as profit margins narrow from slowing energy demand in Europe and the phaseout of nuclear power at home.

Dea is “no longer” of strategic importance, said RWE Chief Executive Officer Peter Terium. “There are only a small number of synergies between RWE Dea and our other core business.”

While the Dea sale “will lead to shortfalls in our operating result,” in the long term the sale will “save billions in the capital investment that will otherwise be needed,” Terium said. Dea’s operating profit rose 23 percent to 685 million euros ($895 million) last year and contributed 11 percent to Essen-based RWE’s total.

Abandons Target

RWE, joining larger competitor EON SE in cutting costs, abandoned a previous target for disposals after prices fell short. Last month, the utility scrapped a 7 billion-euro target for disposals by the end of the year. RWE later that month sold its Czech pipeline operator Net4Gas to Allianz SE and Borealis Infrastructure for almost 1.6 billion euros to help curb debt, adding to 2.1 billion of asset sales already executed.

EON has raised almost 18 billion euros from asset sales and has said it “could come toward 20 billion euros” by the end of 2013.

RWE last month reported full-year profit that missed analyst estimates as power sales dropped. Net income fell 28 percent to 1.31 billion euros. Recurrent net income slipped to 2.46 billion euros, and the company forecast it will decline again this year, to 2.4 billion.

It “will be virtually impossible to maintain this earnings level after 2013,” Terium told the AGM.

Recurrent net, which is adjusted for exceptional items, is used to calculate the company’s dividend, which it kept unchanged at 2 euros a share, a proposal the AGM must approve. Some shareholders said today that is too much.

EON last month confirmed a forecast, made in January, that this year’s earnings before interest, tax, depreciation and amortization will be about 9.2 billion euros to 9.8 billion euros. That’s a drop from 10.8 billion euros in 2012.