Monday, May 6, 2002 RWE -- parent of Thames Water -- searches for new leader FRANKFURT, May 6 (Reuters) - Profitable European blue-chip utility company pursuing aggressive foreign expansion seeks new chief executive. It should be a mouth-watering prospect but RWE AG, which last month made a five billion euro ($4.53 billion) bid for Britain's top power supplier Innogy, is struggling to find a suitable candidate and time is running out. Sources close to RWE say the firm wants to present a successor to Dietmar Kuhnt, who is due to retire at the end of the year, to shareholders at their annual meeting on June 6. But a stand-off between major shareholder Allianz AG and RWE's supervisory board chairman Friedel Neuber means that neither of the two obvious internal candidates will be appointed, forcing the company to cast its net wider. "You can tell that this is a pretty hard fought battle from the fact that there hasn't been an announcement so far," said an industry source. RWE declined to comment on the succession issue. Kuhnt said in March the new chief executive would be named in good time. The job at RWE is one of the top corporate appointments in Germany. The company has a market value of 22 billion euros, making it Europe's fourth biggest listed utility, and delivers a better return on equity than most of its continental rivals. The new chief will have to oversee the integration of acquisitions worth 15 billion euros and respond to E.ON AG's planned takeover of German gas importer Rurhgas, which -- if cleared by the government -- will give RWE's arch rival a leading position in European gas markets. Two RWE board members aspire to the job, but no love is lost between them and if one is appointed, the other is likely to leave Germany's second-biggest utility, a scenario it cannot risk not least for fear of a plunge in its stock, insiders say. NO OBVIOUS INTERNAL SOLUTION To retain finance chief Klaus Sturany and fellow board member Richard Klein -- both of whom have played key roles in transforming the Essen-based group from a cumbersome industrial conglomerate into a streamlined utility -- a neutral manager must be appointed, possibly from outside, industry sources said. Talk that the group may bring in an outsider gained ground last month when industrial gases and engineering group Linde AG poached Wolfgang Reitzle from autos giant Ford. But Preussag chief Michael Frenzel, long seen as a possible candidate due to his ties to Neuber and a gleaming record in overseeing his company's metamorphosis from mining group to one of the world's leading tourism firms, effectively ruled himself out of the race last week. Industry sources said that the field of potential candidates is small and that the job will have to be filled either by an experienced manager from the sector or by an executive skilled at handling international mergers and acquisitions. Against that background, two other names are circulating in the industry -- Gert Maichel, an RWE board member and once head of the VEW utility RWE bought in 2000, and Paul Achleitner, Allianz finance chief and former Goldman Sachs banker. Maichel is younger than Klein and Sturany. Achleitner sits on RWE's supervisory board. OVERHAUL NEEDED "There needs to be a complete overhaul at RWE -- there's nobody with international experience on the management board," said an industry watcher. Chief Financial Officer Sturany is an Austrian-educated mathematician who has won admiration and respect from investors and analysts for his clear communication with financial markets. But sources close to RWE say the internal favourite is Klein, board member in charge of corporate development and the architect of the firm's recent raft of astute deals. "Klein is definitely the internal favourite -- he is known by people and they respect him for being a tough manager," said one RWE manager. Industry sources say neither would accept playing second fiddle to the other and that RWE's stock would take a hit if Sturany quit suddenly. "RWE's share price would fall five percent if they lost Sturany and there wasn't a credible replacement," an industry source said. Whoever takes the helm will have a slightly different task to that undertaken by Kuhnt who, CEO since 1995, has guided the firm through the most profound makeover in its 103-year history. Kuhnt responded to increasingly fierce competition as European energy markets were liberalised by honing the company's focus on core utility operations and expanding geographically by buying UK water company Thames, American Water Works, Czech monopoly gas transporter Transgas and UK power group Innogy. His successor will have to continue the sale of non-core assets like construction group Hochtief and Heidelberger Druckmaschinen -- due by the end of 2003 -- both of which are challenging transactions for RWE.