E.ON has reached an agreement in principle to acquire RWE’s 76.8% stake in German rival Innogy via a wide-ranging exchange of assets and shareholdings that would create one of Europe’s biggest renewables operations under RWE.
After the transaction – which still needs to be approved by antitrust authorities – the renewables businesses of E.ON and RWE would be brought together under the umbrella of RWE, while E.ON would focus on power networks and customer solutions.
The agreement would mean another huge shake-up for Germany's, and Europe's, energy sector, just a couple of years after E.ON set off on a new renewables-focused path by splitting off its conventional assets as Uniper, and RWE decided to list Innogy as a repository for its renewables and grids ambitions.
Innogy investors were enthusiastic about the agreement. The company's shares shot up 13.06% to €39.04 per share in electronic trading on the Frankfurt stock exchange.
Under the deal, E.ON would receive the Innogy majority shareholding in return for granting RWE an effective stake of 16.67% in E.ON SE.
The shares would be issued by way of a 20% capital increase against a contribution in kind from existing capital. Also, E.ON would transfer to RWE most of E.ON’s renewables business, as well as the minority interests currently held by E.ON’s subsidiary PreussenElektra in the RWE-operated nuclear power plants Emsland and Gundremmingen.
RWE would further receive the entire Innogy renewables business, the Innogy gas storage operation and its stakes in Austrian energy supplier Kelag.
The transaction further provides a cash payment from RWE to E.ON of €1.5bn ($1.85bn).
E.ON would also make a voluntary public takeover offer in cash to Innogy’s remaining shareholders at €40 per Innogy share.
E.ON’s announcement came as Innogy announced a 3% rise in adjusted earnings before interests, taxes, depreciation and amortisation (Ebitda) to €4.33bn ($1.23bn) last year, and a 9% increase in adjusted net income to €1.22bn. Innogy’s unadjusted net profit plunged by 48.6%.
Innogy chief executive Uwe Tigges stressed the company is driving forward the expansion of renewables, infrastructure and e-mobility, but will continue to review costs.
“Going forward, we want to become even leaner and faster in order to remain competitive. By doing this, we are making Innogy fit for future challenges, just like our customers, employees and shareholders expect us to. We will comment on the latest announcements by RWE AG and E.ON SE in due course.”
In the renewables division, adjusted earnings before interest and taxes declined by 1% to €355m as strong wind levels in Innogy’s main markets – Germany and the UK – were not enough to compensate for lower than average wind levels elsewhere and substantially lower generation from run-of-river and pumped storage power plants.
Earnings were undermined by a sharp depreciation of the British pound compared to the euro, an impairment on Innogy’s Seabreeze installation vessel.
For the whole group, non-operating results declined by €910m to a loss of €655m. The main factor behind this was the impairment of €479m on the goodwill for the retail segment in the UK in the third quarter of 2017.
The impairment reduced pre-tax income, but has no tax effect, Innogy said, but it was the main reason behind the plunge in net profit.
