German uitlities E.ON, RWE in energy market shakeup

German uitlities E.ON, RWE in energy market shakeup

On March 11, German utility firm E.ON announced it had reached an agreement in principle to acquire innogy from rival RWE.

The logo of German energy company Innogy at its headquarters in Essen.

As part of Sunday's deal, E.ON plans to launch a 40-euro-per-share, or 5.2 billion euro ($6.4 billion), offer to Innogy's minority shareholders, a 16 percent premium to Friday's closing price.

And the deal could see the creation of a new European renewables giant.

The somewhat complex deal involving shares and asset swaps will see RWE take over Eon's renewables business while Eon gets the retail and network businesses of both companies. The renewables businesses of E.ON and RWE would be brought together under the umbrella of RWE.

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The transaction is slated to be enacted in several steps and is subject to regulatory and board approvals.

However, Innogy, which reported its annual results on Monday, said that it had so far not reflected on the proposal and would comment at a later stage.

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.

"A win-win?" Morgan Stanley suggested in a note, reiterating its "in-line" view of the industry. By bolstering its network infrastructure, E.ON should be able to generate substantial cost savings, while RWE will be able to ramp up its solar and wind offerings.

Innogy reported a 3 percent rise in 2017 adjusted operating profit and said it would propose a dividend of 1.60 euros per share for 2017, unchanged from a year earlier.

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