By Christoph Steitz, Arno Schuetze and Alexander Hübner
FRANKFURT (Reuters) - Germany utility EnBW
EnBW is in talks to acquire unlisted peer EWE's [LANDWE.UL] 74.21 percent stake in gas group VNG (VNG.UL), aiming to pay the bulk of the purchase price with its 26 percent holding in EWE, said the three sources familiar with the deal.
The deal has not yet been signed off by the companies but could be announced as early as Friday, according to two of the sources.
It comes as German utilities, including EnBW, are suffering from falling profits at their power plant divisions, hit by the country's decision to exit nuclear power by 2022 and a surge in renewables that is replacing coal and gas-fired capacity.
"The deal will not involve much cash payments," one source said, adding that the respective VNG and EWE stakes will each be valued at roughly 1.5 billion euros.
EnBW, EWE and VNG declined to comment.
Shares in EnBW, Germany's third-biggest utility, were up 2.9 percent at 1042 GMT.
VNG's main business is running gas distribution grids - a type of asset that utilities are keen to snap up as they provide steady returns in times of low interest rates and weak wholesale electricity prices.
The deal would also allow EnBW, which operates mainly in the western German state of Baden-Wuerttemberg, to tap directly into gas supply in eastern Germany - where VNG is based.
This could be a strategic long-term move to position itself in the regional market at a time when new supply routes and trade patterns are being carved out.
Russia's Gazprom (MM:GAZP) has recently re-emerged as a major player in the central gas European market by taking 100 percent in VNG rival Wingas (DE:BASFn) and by agreeing to extend the Nord Stream pipeline.
EnBW's strategy to bolster its gas business saw it buy Italian utility ENI's (MI:ENI) stake in southern German gas joint venture GVS last year.
VNG's grid business is valued at about 1 billion euros, according people familiar with the industry, and its exploration and production operations are worth 200-300 million euros. It also has gas trading operations.
In the planned asset swap, EnBW beat a competing offer from LVV, the holding company of German city Leipzig's local utility, which had tied up with Australian investor Macquarie (AX:MQG) to submit a 1.1 billion euro bid.
EnBW bought the stake in EWE in 2009 for about 2 billion euros.