German utility E.ON AG (EOAN.XE) said Wednesday it has agreed to acquire a minority stake in Brazilian power company MPX Energia S.A. (MPX3.BR), in a deal that will see both companies jointly invest billions of euros in new power plants in South America.

The deal marks E.ON's first investment in Brazil and comes as giant European utilities seek to increase their leverage to booming emerging economies as growth in Europe stagnates. Peer companies like Spain's Iberdrola SA (IBDRY) and France's GDF Suez (GSZ.FR) have also announced recent transactions, in Brazil and China, respectively.

"The partnership between MPX and E.ON aims to develop a total [power production] capacity of 20 gigawatt in Brazil and Chile, thus becoming the largest private energy company in Brazil," both companies said in a joint statement.

The planned generation capacity represents around 20% of Brazil's total capacity at present, they added.

Under the deal, E.ON will acquire a 10% stake in MPX for around EUR350 million, the companies said in a joint statement. The shares will be purchased in a capital increase at MPX, through which the Brazilian company expects to raise a total of EUR423 million, they added.

The companies didn't say how much investment has been earmarked to develop that power generation capacity. According to a report by news agency Reuters Tuesday, the companies will invest a total of around $10 billion in new power plants.

However, a spokesman for E.ON said that it isn't yet possible to provide capital expenditure estimates for the joint venture, adding final investment decision for some of the existing power plant projects haven't yet been made and certain elements of the projects could still be altered.

The transaction is expected to close in the second quarter of 2011, they said.

Initially, the companies intend to develop MPX's existing pipeline of power generation projects with a total capacity of 11 GW.

Wednesday's deal is a major step by Germany's most valuable utility into emerging markets, a goal which it had announced last year as it seeks to move into regions that have stronger growth rates than its present core markets of Europe and the U.S. MPX said the joint-venture would enable it to leverage E.On's international experience and know-how in power generation.

E.On had previously identified Brazil as one of three markets in which it would consider an investment. The other two countries are Turkey and India.

The agreement with MPX comes after E.ON last month lost a bid for a minority stake the Portuguese government sold in Energias de Portugal SA (EDP.LB). EDP could have become E.ON's stepping stone into the Brazilian market, given its strong presence in the fast-growing South American economy.

MPX is a company controlled by the EBX Group, founded by Eike Batista, the wealthiest man in Brazil. It is spending 2.3 billion Brazilian reais ($1.27 billion) to build its first three gas-powered plants in Maranhao state, with total installed capacity of 1,500 megawatt.

The plants are being built close to where Batista's oil and gas company, OGX Petroleo & Gas Participacoes (OGXP3.BR), recently discovered natural gas deposits.

MPX also said it will spin-off its compliance coal mining assets in Colombia to form a new company named CCX, adding that this business won't be part of the partnership with E.ON.

-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503; jan.hromadko@dowjones.com

(Luciana Magalhaes in New York contributed to this article.)

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