E.on agrees to buy Innogy

GERMANY: Utility E.on has agreed a deal 'in principle' with RWE to acquire the subsidiary Innogy in a complex shares and assets deal.

E.on will acquire RWE's Innogy subsidiary in a complex shares and assets swap deal
E.on will acquire RWE's Innogy subsidiary in a complex shares and assets swap deal

Under the agreement, E.on will receive RWE's 76.8% stake in Innogy. In return RWE will acquire a 16.67% "effective participation" in E.on.

E.on will, however, effectively only buy Innogy's grid and retail business, as Innogy's — and "most of" E.on's — renewable assets will be being transferred to RWE as part of the deal.

RWE will also take over E.on's minority interest in two RWE-operated German nuclear plants in Gundremmingen, Bavaria, and Emsland, Lower Saxony.

As well as Innogy's renewables assets, RWE will also take on the subsidiary's gas storage business and its share in Austrian utility Kelag.

The deal still needs to be approved by both companies' boards. It will also require regulatory and anti-trust backing.

The deal has been valued at roughly €43 billion, according to the Financial Times newspaper, with much of the transaction funded by newly issued shares.

E.on is also set to make a voluntary public takeover offer to Innogy shareholders of around €40/share.

"The total value consists of an offer price of €36.76 per share plus assumed dividends of Innogy for the fiscal years 2017 and 2018 in the total aggregate amount of €3.24 per share. RWE will not participate in the offer," E.on said.

According to financial newswire Bloomberg, little actual cash will exchange hands. E.on will pay roughly €5 billion to buy out Innogy's shareholders, while RWE will pay E.on about €1.5 billion.

The deal will make E.on one of the largest grid and utility players in Europe, while RWE will become a purely generation company with a large renewables portfolio.

As a result of the announcement, E.on's share price lept 5% from €8.45/share at close on Friday 9 March, to a high of €8.91/share on the morning of Monday 12 March. Innogy's share price also increased 16.9% from €34.17/share to €39.95, while RWE's price grew 11% from €18.00 to €20.01 per share. 

Difficult times

Both German utilities had been struggling since the introduction of the Energiewende in 2010, a policy to aid the transition to a low-carbon energy market in their home country.

In December 2015, RWE announced it was spinning off its renewables, grid and retail operations into a new subsidiary, which became Innogy.

However, the move to split conventional generation from renewables failed to have the intended positive impact, and RWE chief executive Peter Terium stepped down from the role in December 2017, following profit warnings.

E.on had made a similar move in December 2014. It announced it would spin-off its conventional power business into an independent company.

This subsidiary became known as Uniper, and is currently in the process of being sold to Finnish power company Fortum in a €3.6 billion deal.

Innogy income falls

Alongside this announcement, Innogy released its financial results for 2017. The firm reported a 25% fall in pre-tax income to €1.65 billion.

Adjusted Ebitda increased 3% from €4.2 billion to €4.3 billion for the year, while external revenue totalled €43 billion — down 1.1%.

In its financial report, Innogy said it had identified around €3.5 billion of investment opportunities in renewables for 2018-2020 — this, however, is set to change in light of the transaction.

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