RWE, E.ON reshape German power sector in Innogy deal

ReutersESSEN/DUESSELDORF (Reuters) — Germany’s top utilities on Sunday announced plans to break up Innogy, whose assets will be divided among parent RWE and rival E.ON in the sector’s biggest overhaul since a landmark move to exit nuclear power.

The deal, which includes E.ON making a €5.2 billion ($6.4 billion) takeover offer to Innogy’s minority shareholders, spells the end of the network, renewables and retail energy group, carved out from RWE two years ago, as a standalone unit.

Chancellor Angela Merkel’s decision to abandon nuclear power after Japan’s Fukushima nuclear disaster in 2011 has forced the sector to radically restructure in order to survive and already caused major plant shutdowns and billions of euros of losses.

Peter Altmaier, the next economy minister and a close ally of Merkel, said the deal was a consequence of that shift, known as the “Energiewende” in German. The companies had to adapt, he told the Rheinische Post newspaper.

Through the deal, which includes a share issue and asset swaps, E.ON will acquire Innogy’s prized regulated energy networks and customer operations, while RWE will take on the renewables businesses of both E.ON and Innogy.

That would position RWE, which relies heavily on coal and gas-fired power plants, as a champion of the shift away from fossil fuels towards a more sustainable mix of energy sources. RWE kept 76.8 percent of Innogy after the 2016 carve-out.

Advantageous step

A source involved in the deal said it would be slightly more beneficial to E.ON, which would become a bigger regulated business by adding more networks, while RWE would end up owning interests in the riskier and more competitive renewables sector.

The source said that E.ON had been in a better bargaining position after RWE shopped Innogy to other European rivals, including France’s Engie, Italy’s Enel and Spain’s Iberdrola, without striking a deal.

“This looks like an advantageous step for E.ON at first glance,” said Thomas Deser, fund manager at Union Investment, which holds shares in E.ON, RWE and Innogy.

“Through the renewable pipeline, RWE, too, should be able to offset its dwindling nuclear and lignite business as well as attract partners for the expansion of its wind business.”

The all-German transaction comes less than two years after E.ON and RWE both split up their businesses to separate legacy fossil fuel power plants from more promising networks and renewable assets.

E.ON in January agreed to sell a remaining 46.65 percent stake in its power plant and trading unit Uniper, which it spun off in 2016, to Finland’s Fortum, a deal expected to close later this year.

The RWE-E.ON swap will also hand RWE — Germany’s biggest electricity producer — a 16.67 percent stake in E.ON by way of a 20 percent capital increase. RWE will pay another 1.5 billion euros to E.ON to close a valuation gap that results from the complex structure of the asset swaps.

The transactions, which still require approval from the company’s boards, face scrutiny by European Union regulators as well as from Germany’s Federal Cartel Office, which did not respond to an emailed request for comment.

The European Commission declined to comment.

Innogy has been in turmoil since Chief Executive Peter Terium resigned in December in the wake of a profit warning and Chief Financial Officer Bernhard Guenther fell victim to a recent acid attack.Speech

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