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ENERGY

RWE swallows Dutch energy firm Essent

Germany's second biggest power company, RWE, said Monday it had agreed to a €9.3-billion ($12.5-billion) acquire Dutch peer Essent in the biggest European takeover this year.

RWE swallows Dutch energy firm Essent
Photo: DPA

The deal makes RWE a major energy supplier across much of Western Europe and should protect the German company from becoming a takeover target in turn. The two groups “have today reached agreement on the terms and conditions for a binding all-cash offer by RWE to the shareholders of Essent for the acquisition of all of the issued and outstanding shares in Essent,” the RWE statement said.

Essent’s distribution networks and waste management operations were not included in the deal. RWE has also been interested in expanding outside its core markets of Germany and Britain, and the deal makes it “one of the leading energy providers in the Benelux” region of Belgium, Netherlands and Luxembourg, the statement said further.

The deal is subject to RWE being able to secure at least 80 percent of Essent’s issued and outstanding share capital and would be finalised following approval from relevant competition authorities, it added.

The German group had earlier sought to buy British Energy, which was snapped up by French rival EDF, and the Russian company TGK-2, a deal that collapsed when the two sides were unable to agree on a price.

RWE finally became itself the object of takeover rumours, with EDF said to be among those interested. With Essent, RWE will vary its sources of production and improve its average level of carbon dioxide emissions, a topic which is gaining in importance in Europe. While RWE has focused until now on producing electricity with nuclear energy and coal, Essent has also developed renewable energy sources such as, wind parks, along with biomass, hydraulic and solar sources.

The deal “will complement RWE’s own efforts to increase its renewable capacity to 4,500 MW (megawatts) by 2012,” the statement said.

RWE shares nonetheless fell by 1.52 percent to €62.17 following the announcement, while the DAX index of leading German shares was off by 0.31 percent overall.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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