E.ON To Acquire Innogy, RWE To Get Gas Storage

Update from Innogy CEO in final para

Germany’s two largest power and gas groups have agreed on a major asset swap, subject to the approval of their boards and competition regulators, that will reduce overlap in their activities.

E.ON announced early March 11 it had agreed in principle to acquire RWE’s controlling 76.8% stake in Innogy, created April 2016 when RWE split off its networks, retail and renewables businesses. However, RWE is to keep all of Innogy’s gas storage and most of Innogy’s renewables business – which will be brought back under RWE.

In return, E.ON will grant RWE a 16.67% stake in E.ON – the shares to be issued by way of a 20% capital increase against a contribution in kind from existing authorised capital; and most of its renewables business as well as minority stakes currently held by E.ON-owned PreussenElektra in two RWE-run nuclear plants (Emsland and Gundremmingen).

RWE also receives the entire innogy renewables business, the Innogy gas storage business and Innogy's stakes in Austrian energy supplier Kelag. The transfer of businesses and participations would be conducted with economic effect as of January 1 2018. The transaction further provides for 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 shareholders, which it currently values as at €40 per Innogy share (an offer price of €36.76/share plus assumed 2017 and 2018 Innogy dividends); RWE would not participate in the offer.

Through the transaction, E.ON said it would "become a focused customer-oriented energy company concentrating on energy networks and customer solutions."

E.ON recently amassed €3.76bn by the sale of its 46.65% stake in fossil-fuel generator and supplier Uniper to Finland’s Fortum but the latter failed to secure majority control of Uniper. E.ON made a huge €16bn loss in 2016 and was under pressure to reduce its debt. The latest deal would see E.ON acquiring retail and regulated networks interests, but also divesting to RWE its more tangible assets like windfarms that have guaranteed income streams as well as regulated gas storage assets.  

Earlier this year Innogy agreed to merge its disappointing UK retail business into a future energy retail joint venture with UK-based SSE.

Innogy announced 2017 results on March 12: its net profit fell to €907.6mn, from €1.59bn in 2016.  RWE publishes its 2017 results on March 13, while E.ON follows one day later. 

Innogy CEO Uwe Tigges said the company would decline to comment on the transaction announced March 11 by RWE and E.ON "until further notice", telling analysts at 11.30am GMT March 12 on a conference call that Innogy had not had enough time to evaluate the proposed transaction.

It's a week since Innogy finance chief Bernhard Gunther was seriously injured March 4 when acid was thrown in his face in a deliberate attack. Motive is unclear, but newspapers said it might be linked to RWE's involvement in lignite mining. Gunther was RWE CFO prior to moving to Innogy. Innogy's investor relations chief thanked callers to the March 12 analysts presentation for their warm wishes for Gunther's recovery. Acting CFO Hans Bunting meanwhile said that Innogy's planned merger of its UK retail energy business with that of SSE was submitted to the UK competition regulator (CMA) for approval late last month, and is expected to complete 4Q2018 or 1Q2019.