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.


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

Maichel is younger than Klein and Sturany. Achleitner sits on
RWE's supervisory board.


"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

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

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.