Tim Gosling in Prague -

Moving swiftly to head off a counter bid from Czech state-controlled utility CEZ, the Prague municipality announced on December 10 that it has agreed to buy partner E.ON out of city gas trader and distributor Prazska Plynarska.

The same day, CEZ announced it has offered to buy German group E.ON's 49% stake in Prazska Plynarenska Holding (PPH), which holds a 50.2% share in gas company Prazska Plynarenska (PP), which serves the Czech capital. It also offered to acquire E.ON's 49.35% direct stake in PP. However, Prague City Council quickly announced that it agreed at its December 10 meeting to exercise its pre-emptive rights to buy the assets.

The acquisition will cost CZK2.1bn (€77m), according to local press reports. "The city received an offer on November 25 from E.ON Czech Holding AG to exercise its priority rights to buy the stake in Prague Gas Holding Company," Deputy Mayor George Vavra told reporters, according to CTK.

The assets will next be sold to a strategic partner, the city says. Speculation suggests three candidates are in the running: German company Energie Baden-Württemberg Aktiengessellschaft (EnBW), Czech energy firm Energeticky a Prumyslovy Holding (EPH) and the powerful local businessman Karel Komarek.

It was around the same date that the city claims E.ON made its offer to sell that speculation CEZ was eyeing the asset emerged. Confirming the rumours, the power giant offered on December 9 to buy E.ON out, according to spokesman Ladislav Kriz, in a statement that hinted it hopes yet to play a role. "Cooperation between the City of Prague and CEZ, which has extensive experience in customer care and is also the largest alternative supplier of gas, would allow improving the quality and extending the scope of services for Prague's citizens," it claimed.

Prague has been engaged in a tug of war with E.ON over the asset for some time, but said last month that it was seeking a utility industry investor to buy the German-held stake. Thanks to the shareholder structure, the city exercises control over the gas company through the holding, despite E.ON currently enjoying a stake of around 70%. It has long been assumed that the German company, which is in the midst of a drive to sell off assets in smaller markets, would soon tire of the arrangement.

EPH, a closely-held Czech energy group that has been ravenously buying up assets across Central Europe in recent years and has been accused of colluding with CEZ to corner the Czech power market, has been discussing a purchase of Prazska Plynarenska, and was expected to sign a deal soon, according to bne sources. However, major partner PPF Group - owned by the Czech Republic's richest man, Petr Kellner - is set to exit EPH, taking CZK30bn (€1bn) from the remaining shareholders with it.