By Jan Hromadko
FRANKFURT--German utility RWE AG said Sunday it intends to sell its oil and gas production unit to Russian billionaire Mikhail Fridman in a transaction valued at more than @5 billion ($7 billion).
Germany's second largest utility by market value said it had agreed in principle to sell its upstream oil and gas business RWE Dea for around @4.5 billion to Mr. Fridman's energy investment vehicle L1 Energy. L1 Energy will also take on around @600 million of RWE's liabilities, raising the deal's value to @5.1 billion.
RWE said it agreed to the "major contractual conditions" of the disposal, but details remained to be resolved. The company expects to finalize the transaction shortly, it added.
"This agreement is a major milestone in delivering our announced strategic realignment of the group," said RWE Chief Executive Peter Terium.
RWE put Dea up for sale about a year ago, in what was seen as a cornerstone of its effort to reduce debt and conserve cash. The company is struggling with falling profits from its power plants because subsidized renewable energies are eating into its business across Europe.
Mr. Fridman's bid for RWE Dea topped a rival offer from Germany's Wintershall AG, a unit of chemical giant BASF SE, which had offered around @3.5 billion.
A third offer had been filed by a consortium of U.S. private-equity firm Kohlberg Kravis Roberts & Co. and state-owned Kuwait Petroleum Corp. But people familiar with the disposal talks said last week that KKR and Kuwait had dropped out of the tender process.
L1 Energy confirmed it had agreed on the acquisition of RWE Dea.
RWE said the deal would be subject to the approval of its supervisory board and regulators in several countries.
Eyk Henning contributed to this article.
Write to Jan Hromadko at email@example.com