German giants Eon and RWE strike major deal, move closer together

RWE LOGO IN ESSEN GERMANY 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.

It would leave E.ON operating primarily as an energy networks and retail specialist, with RWE significantly strengthening its position in the renewables and clean energy generation markets.

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.

RWE and E.ON are making these massive reorganizations faced with the rise of wind and solar power in Germany and across Europe, which has undercut the markets and profits for fossil fuels and nuclear power plants.

RWE had been in talks with European peers including Engie ENGIE.PA and Enel ENEI.MI over the a year ago on a potential transaction and was even close to reaching a deal with Iberdrola IBE.MC in late 2017, the sources said.

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Under the agreement in principle, E.ON will acquire RWE's 76.7% stake in innogy in a complex transaction including asset swaps, it said. Chancellor Angela Merkel welcomed the deal and said she had faith in Germany's utilities to find the best way to adapt to the country's energy shift dubbed Energiewende.

RWE is being advised by Bank of America Merrill Lynch and Citi on the deal, E.ON has hired Perella Weinberg Partners and BNP. The supervisory boards of both RWE and E.ON have approved the transaction.

If approved, the deal would spell the end for Innogy as a standalone company.

Analysts at Jefferies said while helping E.ON achieve scale and efficiencies in networks and retail, and transforming RWE into a leading renewables and security of supply provider, a deal "would involve another two years in costly restructuring". Chief executive Peter Terium resigned late previous year in the wake of a profit warning leaving Uwe Tigges as interim CEO.

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