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. Last Updated: 07/27/2016

Gazprom Seeks All of City Utility

Mosenergo said Tuesday that Gazprom had offered to buy out all of the Moscow city utility's shares that it does not already own in a deal that could be worth as much as $4.7 billion.

By putting a high price on the offer, Gazprom could well boost its Mosenergo stake to 75 percent or more, preventing any minority shareholders from building a blocking stake in the firm.

The apparent intention to achieve unchallenged control of Mosenergo represents another step toward Gazprom's goal of gaining a commanding position in the country's electricity market.

Such an acquisition, however, would hardly change Mosenergo's investment plans, as Gazprom already owns a majority of the firm's stock, analysts said.

Gazprom increased its stake in Mosenergo to 49.9 percent in the course of an additional share offering earlier this year. Analysts believe that Gazprom controls a further 4 percent through its subsidiaries.

The utility's other largest shareholders include national utility Unified Energy System and the Moscow city government. Mosenergo is the city's main power supplier.

Gazprom has acted under legislation that requires companies to extend buyout offers if they are in possession of 30 percent of another company.

Gazprom spokesman Sergei Kupriyanov indicated that the offer was not a formality but an earnest effort to expand its control over the utility. "You can see everything if you look at the price," he said.

In its offer, Gazprom said it would pay 6.5 rubles (25 cents) for a share. By law, it could set a lower price of 6.15 rubles to 6.25 rubles, which is the average market price over the past six months, analysts said.

"Chances are high that Gazprom, through this offer, will increase its stake to 75 percent," said Dmitry Skvortsov, an analyst at the Bank of Moscow.

Shareholders have until Nov. 19 to respond to the proposal.

UES, which holds 36.2 percent in Mosenergo, could agree to sell half of that stake to Gazprom if it decides that the sale will raise more money than a placement on the London Stock Exchange, spokeswoman Margarita Nagoga said.

"We consider all options as realistic," she said.

The half that UES could sell to Gazprom belongs to the state, while the other half will pass to UES's minority shareholders before the company's liquidation in July.

Moscow city government spokesman Sergei Tsoi was out of the office and unavailable for comment Tuesday. His deputy Stanislav Oganyan, the other official authorized to speak about the city government's interest in Mosenergo, did not return calls.

"I think that many minority shareholders will be responsive and will sell their stakes at this high price," said Sergei Beiden, an analyst at Dresdner Kleinwort in Moscow.

Gazprom declined to say how it would fund possible acquisitions. "It's too early to talk about this," Kupriyanov said.

Gazprom is already laden with more than $40 billion in debt.

Together with Mosenergo, the gas giant controls various smaller generation and distribution stakes worth more than $10 billion. In July, UES allowed Gazprom to own majority stakes in OGK-2 and OGK-6, which together produce more than 8 percent of the country's non-nuclear energy.

Gazprom also agreed in February to pool its power assets with the Siberian Coal and Energy Company -- which owns significant stakes in 27 energy companies and a 2 percent stake in UES -- to form a $12 billion electricity holding, the country's largest by far.

The government plans to dissolve UES and spend $120 billion through 2011 in a huge electrification effort. As part of the plan, UES is selling stakes in its 20 thermal generating companies, attracting such European energy heavyweights as Germany's E.On, Finland's Fortum and Italy's Enel.