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Fortum moves for E.ON Finland

18 January 2005 – Finland-based energy company Fortum announced Monday that it would be using a call option to buy all shares of E.ON Finland owned by the German E.ON Group.

The call option is part of the compensation Fortum received from the Wesertal deal made with E.ON in 2002. The shares to be acquired from E.ON constitute about 65.6 per cent of the share capital and votes of E.ON Finland.

According to the contract Fortum has the option to buy shares during three months from the beginning of 2005 at a price of about €38 ($50) per share. The total value of the purchase is about €390m. The exact purchase price depends on the net result and dividend distribution of E.ON Finland for the year 2004.

The board of Fortum also decided to make a purchase offer to the City of Espoo, which is the largest minority shareholder of E.ON Finland with a share of approximately 34.2 per cent. The offered price is €48 per share, which is about 52 per cent more than the last closing rate of E.ON Finland and about 62 per cent more than its volume weighted average share price last year. When the offer of Fortum is approved, Fortum will pay to the City of Espoo about €257m in cash.

If Fortum’s share of the share capital and votes of E.ON Finland exceeds 90 per cent as a result of the offer, Fortum will offer to redeem the shares of other shareholders at the same price as in the purchase offer to the City of Espoo.

When the transactions have been realized, Fortum plans to develop the operation of E.ON Finland by investing about €300m into expanding its main power plant in Suomenoja, Espoo and increasing the power generation capacity significantly to almost 400 MW. The solution based on using natural gas will markedly reduce the emissions of the power plant.

According to Mikael Lilius, CEO of Fortum, E.ON Finland fits well to the strategy of Fortum, which aims at growth and success in the power market that has already integrated into a common Nordic market and will soon become a common European market. “As the market opens up, competition will become tighter. Together E.ON Finland and Fortum can efficiently seize the opportunities offered by the new market conditions. For the future of Espoo’s electricity business and the people of the area it is important to have an active Finnish company that is able to compete in this expanding market,” says Mr Lilius.

In 1999 Länsivoima acquired approximately 28 per cent of shares in Espoon Sähkö. Länsivoima was merged with Fortum in 2000, and Fortum became a shareholder of Espoon Sähkö.

In September 2001 the City of Espoo and the German power Group E.ON signed a sale and shareholders’ agreement according to which the City of Espoo sold approximately 34 per cent of Espoon Sähkö’s shares, i.e. half of its remaining ownership, to E.ON.
The shareholders’ agreement granted the City the right to sell the remainder of its Espoon Sähkö shares to E.ON by the end of the year 2004 and pre-emptive rights to both parties.

In February 2002 E.ON made a public purchase offer for all Espoon Sähkö shares, excluding the approximately 34 per cent owned by the City of Espoo. As a minority shareholder Fortum accepted E.ON’s offer in March 2002 and sold its approximately 28 per cent stake. As a result of the purchase offer Espoon Sähkö became a subsidiary of E.ON and the name Espoon Sähkö was later changed to E.ON Finland.

In April 2002 E.ON and Fortum agreed upon the Wesertal deal in which Fortum sold its power operations in Germany to E.ON. The total value of the deal was approximately EUR 550 million. In connection with the Wesertal deal E.ON signed an agreement with Fortum according to which Fortum has the right to purchase all E.ON Finland shares held or acquired later by E.ON. According to the agreement, the effective dates of the call option are 1st of January to 31st March, 2005. As the call option was to start after the put option period that the City of Espoo and E.ON had agreed upon, this agreement did not conflict with the shareholders’ agreement between the City of Espoo and E.ON.

Standard & Poor’s Ratings Services said that Fortum ‘s decision to acquire E.ON Finland has no ratings implications. It said that the combined acquisition price is affordable within Fortum’s rating. E.ON Finland’s electricity distribution and heating utility operation made a €52m net profit in the first nine months of 2004. The company is virtually debt free, and will fit well with Fortum’s Nordic utility strategy.