Fortum, the German government and Uniper have signed a new agreement in principle for a long-term solution that will allow the German state to take full control of Uniper to secure Germany’s energy supply. Once complete, the deal allows Fortum to divest Uniper and refocus on clean Nordic power generation as a core business. It replaces the original Uniper stabilization agreement between the same parties, signed in July 2022.
Since July, the European energy crisis has further worsened and the gravity of the situation has shown that the previously agreed stabilization measures are insufficient and difficult to implement. To date, Uniper has accumulated almost 8.5 billion euros in gas-related losses and cannot continue to fulfill its role as a key provider of security of supply as a private company. The newly found solution therefore passes through the control of the German State.
“In the current circumstances of the European energy markets and given the seriousness of Uniper’s situation, the sale of Uniper is the right decision to take, not only for Uniper but also for Fortum. The role of gas in Europe has fundamentally changed since Russia attacked Ukraine, as has the outlook for a gas-heavy portfolio. Therefore, the business case for an integrated group is no longer viable,” says Markus Rauramo, CEO and President of Fortum.
Under the terms of this agreement, Uniper plans to issue 4.7 billion new ordinary registered shares, which the German state plans to subscribe to at a nominal value of EUR 1.70 per share. German public bank KfW will provide Uniper with additional liquidity support until the €8 billion capital increase is completed.
Following the capital increase, the German state plans to buy back all of Uniper’s approximately 293 million Fortum shares for EUR 1.70 per share, i.e. a total of EUR 0.5 billion . At that time, the change of control clause in the financing agreement will be triggered and the German state will provide financing for the repayment of Fortum’s €4 billion shareholder loan to Uniper and the release of the guarantee of the parent company of 4 billion euros.
The parties have also agreed that Fortum will have a right of first offer in the event that Uniper intends to divest all or part of its Swedish hydroelectric and nuclear assets until the end of 2026.
“We have made choices in the past that we were really confident about at the time, based on the information available, the market environment and the outlook. In hindsight, some of our strategic choices turned out to be liabilities. We must now face and mitigate the impact of these decisions. While the sale of Uniper will be a painful step for the company, its employees and its investors, Fortum will be able to look to the future and focus on its Nordic core business, CO2-free electricity and heat as well as sustainable customer solutions,” says Markus Rauramo.
Financial effects of the sale of Uniper
As a result of the agreement, Fortum will deconsolidate Uniper and report it as discontinued operations in the third quarter 2022 interim report. Fortum’s financial statements for continuing operations will not include any impact from Uniper’s operations.
In previous quarters, Fortum recorded significant cumulative losses mainly in the form of provisions and negative fair value adjustments to Uniper, mainly due to the reduction in Russian gas. Uniper’s additional losses in the third quarter and beyond will therefore have no impact on Fortum Group’s equity, as these losses will be offset by the deconsolidation effect. Based on Fortum’s balance sheet as of June 30, 2022, the deconsolidation would strengthen Fortum Group’s equity by approx. 5 billion euros.
Uniper’s loss for discontinued operations to be reported in Fortum’s third quarter 2022 interim report will include Uniper’s net loss for the first nine months of 2022 and the positive impact of deconsolidation.
The disposal will have a negative impact on the equity of the parent company Fortum Oyj, however, Fortum has estimated that the equity remains at a sufficient level and does not require additional capital injections.
Following the deconsolidation of Uniper from the third quarter of 2022, Fortum’s €4 billion shareholder loan to Uniper, which will be repaid on completion, will be recognized as a receivable. The €0.5 billion consideration for Fortum’s shares in Uniper will be recorded as a short-term receivable until the share transaction is finalized.
As part of the deconsolidation of Uniper and the reclassification to discontinued operations, Fortum will restate comparative quarterly information for the full year 2021 and the first half of 2022. Restated information will be published before the publication of the group’s results in the third quarter of 2022 on November 10, 2022.
Completion of the agreement
Completion of the agreed transaction remains subject to the conclusion of definitive agreements with the German state and Uniper as well as regulatory approvals in multiple geographies, including merger control and state aid clearances from the European Commission. The completion of Uniper’s capital increase by the German state also requires the approval of an extraordinary general meeting of Uniper. Completion of the agreed transaction is currently expected by the end of this year.
The completion of the transaction mitigates the risks associated with the material uncertainty of Uniper’s liquidity and financial condition which also affects Fortum. Uniper’s financial distress or ultimately insolvency, whether as a result of the failure of the agreed transaction, or otherwise, could be detrimental to Fortum and have serious consequences, not only for Fortum’s financial arrangements , but also for the Nordic countries and possibly European energy markets.