Czech tycoon Kellner to sell out of Central European energy group EPH

By bne IntelliNews June 20, 2014

Tim Gosling in Prague -


Czech tycoon Petr Kellner's PPF Group has agreed to sell its 40% stake in Energeticky a prumyslovy holding (EPH), which will see the other two existing shareholders take joint control of the M&A-hungry Central European energy group.

Reports of a sale by Netherlands-registered PPF have been doing the rounds since late last year, after it bought out major Czech mobile operator Telefonica CR. However, a divestment of a 4.4% stake to the two partners in  EPH - the Slovak financial group J&T of Patrik Tkac and EPH CEO Daniel Kretinsky - in March suggested PPF planned to keep its remaining 40% stake.

"The shares will be acquired directly by EPH, and then cancelled," EPH said in a statement. "EPH's ownership structure will change as a result of the transaction, with Daniel Kretinsky and Patrik Tkac controlling 37 per cent each and taking joint control of EPH. The remaining shares will be retained by J&T's private equity structures." Tkac is a founder of the murky J&T, while Kretinsky is a former partner.

No details on the size of the deal were released. Sources told Reuters in April that the price for the stake would be "in the area" of €1.1bn, around the same figure previously speculated in the Czech press. Kellner's group entered EPH in 2009 for around CZK3bn (€110m), according to those early reports, meaning the deal is likely to see PPF reap a capital gain of around 1,000%.

Strategic player

EPH has pushed its way into a strategic position in Central Europe over the last few years via a ravenous appetite for acquisitions. That has seen it build a portfolio of more than 30 entities active in all major parts of the energy chain (eg. mining, heat and electricity generation, and commodities trading).

Along the way, it has often been accused of colluding with state-controlled CEZ to carve up the Czech power market. It is now also the third largest heat supplier in the country, and holds a similar position in the German coal mining industry.

In recent weeks it has taken on a major role in global geopolitics, and is reported to be under scrutiny by the US and EU over its role in stymieing EU gas exports to Ukraine. Set on the mainline route from Russia to Europe, Slovakia is key to the pipeline reversals needed to supply Ukraine with gas from the EU at cheaper prices than Moscow is offering. However, Slovakia is refusing to play ball, limiting the capacity for the operation severely.

That puts EPH front and centre in the row. In early 2013, it bought into Slovak pipeline operator SPP. The €2.6bn purchase from E.ON Ruhrgas and GDF Suez handed the company 49% and management control of the Slovak section of the pipeline that carries the bulk of Russian gas imports into the EU. There was a mini-scandal in Bratislava in September when it was announced that the Slovak government, which holds 51% in SPP, would buy EPH out of the gas importing part of the business - which runs at a loss due to heavy regulation on domestic gas prices. The opposition noted the good relations between the ruling Smer party and J&T. 

However, Bratislava was rewarded for its loyalty in May when Gazprom handed it a pricing discount on gas. At the same time, Kellner has strong ties in Russia, in particular with a group of oligarchs based in St Petersburg.

Yet it appears the biggest Czech oligarch has now taken off in a different direction. PPF become one of the Czech Republic's three major mobile operators after it purchased 66% in the Czech subsidiary of Spanish telecoms giant Telefonica for €2.47bn. It has since been haggling with regulators over the price of a mandatory offer to minority shareholders. In November, PPF was also reported to be eyeing the minority stake in Slovak Telekom that is currently held by the state.


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