BASF and LetterOne sign letter of intent to create Wintershall DEA

BASF and LetterOne have signed a letter of intent to merge their respective oil and gas businesses in a joint venture, which would operate under the name Wintershall DEA. The oil and gas business of BASF is bundled in the Wintershall Group consisting of Wintershall Holding GmbH and its subsidiaries, including the gas transportation business.

The oil and gas business of LetterOne comprises DEA Deutsche Erdöl AG and its subsidiaries. By combining these two German-based entities, their parent companies strive to create a basis for further profitable growth, optimize the portfolio footprint of the combined business and realize synergies. Wintershall DEA would have significant growth potential and be one of the largest independent European exploration and production companies. In the medium term, BASF and LetterOne envisage to list Wintershall DEA through an initial public offering.

In the coming months, BASF and LetterOne will prepare and conduct a confirmatory due diligence and negotiate definitive transaction agreements. Closing could be expected in the second half of 2018, subject to customary regulatory approvals. Until the closing, Wintershall and DEA will continue to operate as independent companies. There is no assurance that BASF and LetterOne will enter into definitive transaction agreements or that the intended transaction will be consummated. 

LetterOne intends to form Wintershall DEA by contributing all its shares in DEA Deutsche Erdöl AG into Wintershall against issuance of new shares to LetterOne. Based on the valuation of the exploration and production businesses, BASF shall initially hold 67% and LetterOne shall hold 33% in Wintershall DEA. In this shareholding ratio, Wintershall’s gas transportation business is not accounted for. As of closing, Wintershall DEA shall issue a mandatory convertible bond to BASF reflecting the value of Wintershall’s gas transportation business. No later than 36 months after closing, this bond shall be converted into new shares in Wintershall DEA, resulting in a higher shareholding ratio for BASF.

BASF would determine the chief executive officer and LetterOne the deputy chief executive officer of Wintershall DEA. The company would be headquartered in Kassel and Hamburg, Germany. Following the closing of the transaction, BASF expects to account for its stake in the joint venture under the equity method in BASF’s consolidated financial statements. 

DEA is operating in the field of exploration and production of crude oil and natural gas and is headquartered in Hamburg, Germany. The company has long-standing experience along the entire value chain of the upstream business. In March 2015, DEA – formerly part of RWE AG – was acquired by LetterOne.

Wintershall, headquartered in Kassel, Germany, focuses on exploration and production in oil and gas-rich regions in Europe, Russia, South America, North Africa, and the Middle East. Together with Gazprom, Wintershall is also active in the transportation of natural gas in Europe.