RWE and E.ON reorganise amid huge mutual asset swap

18 March 2018

As part of a far reaching exchange of assets and businesses that will change the face of the German energy industry, E.ON and RWE agreed on 12 March that RWE would transfer its entire stake of 76.8 % in innogy to E.ON.
Both companies remain headquartered in Essen. The newly created E.ON will have a clear focus on intelligent networks and customer solutions, and is well positioned to become what it calls an innovative force behind the energy transition in Europe. RWE will become a broadly diversified power producer, adding a large portfolio of renewables assets to its conventional energy generation and linking the two with its existing trading platform. This set-up, says RWE, should enable it to generate sustainable, profitable growth.
The transaction brings together the strengths of both previously vertically integrated German energy utilities by enabling a focus on networks and customer solutions on the one hand, and on a fully diversified generation business on the other.
In more detail – it has been agreed that RWE will sell its 76.8 % participation in innogy to E.ON for: (1) a resulting shareholding in E.ON of 16.67 % from authorised capital as part of a non-cash capital increase by E.ON; (2) substantially all of E.ON’s renewables activities; (3) innogy’s renewables business; (4) the minority stakes currently held by E.ON’s subsidiary PreussenElektra in the RWE-operated power plants Emsland and Gundremmingen, and (5) innogy’s gas storage assets and its participation in the Austrian energy utility Kelag. The transaction agreement provides for a payment from RWE to E.ON of €1.5 billion, and values RWE’s 76.8 % stake in innogy at €40.00 per share, including the assumed dividends of innogy SE for the fiscal years 2017 and 2018 of a total of €3.24 per share to which RWE will remain entitled.
E.ON will also make a voluntary public takeover offer in cash to the current minority shareholders of innogy. This offer will provide innogy shareholders with a total value of €40.00 per share as of 12 March, which represents a premium of 28 % to innogy’s last share price unaffected by media speculation on 22 February 2018, and a 23 % premium to the three-month volume-weighted average trading price (VWAP). The total value consists of an offer price of €36.76 per share plus the payment of a total of €3.24 per share for the fiscal years 2017 and 2018 from assumed dividends of innogy SE, which the current shareholders will still receive. If the takeover offer completes prior to the date on which innogy’s Annual General Meeting resolves on the dividend for the fiscal year 2018, E.ON will increase the offer price, such that the total value of €40.00 per share remains unchanged for the shareholders of innogy.

Game changer
The new E.ON will be the first formerly integrated European energy company to focus entirely on meeting the demands of its 50 million or so customers across Europe, with intelligent networks and innovative customer solutions at its heart.
Johannes Teyssen, CEO of E.ON: “This strategic exchange of businesses will create two highly focused companies that will shape a better future for Europe’s energy landscape. Each company will have a stronger entrepreneurial core. Bringing together E.ON’s and innogy’s activities in the fields of networks and customer solutions will allow E.ON to enhance its strong offering along the part of the energy value chain that is closest to the customer. The new E.ON will be able to intensify its efforts towards climate protection, for example through the faster roll-out of charging networks for e-mobility or the advancement and extension of smart grids in Europe. In turn, our renewables platform will become part of a stronger joint entity within RWE.”
After the integration of E.ON’s and innogy’s renewables businesses, RWE will be running ‘CO2-free generation capacity’ amounting to approximately eight GW from offshore and onshore wind as well as hydro and photovoltaics, and will become the number three ranked company in Europe in the renewable energy business as a whole, and number two in wind power. This will open up growth prospects, with a concrete project pipeline in Europe and the USA. The combination of renewable and conventional power generation will allow the company to ‘actively and responsibly transform and reshape energy systems in support of ambitious climate protection targets’.
Rolf Martin Schmitz, CEO of RWE: “Renewable and conventional energy generation are two sides of the same coin when it comes to the transformation of the energy world. The expansion of CO2-free electricity generation will increasingly evolve from a regulated sector to a normal competitive market. Significant size is crucial for success in this future-orientated business. At the same time, security of supply remains the beating heart of any future-proofed industrial society. Our trading platform links and seamlessly brings to market all energy assets in our portfolio. The combination of these businesses, together with our solid financial situation allowing for growth investments, make RWE a strong partner of the energy transition – beyond the borders of Germany. The core business of the company and our solid financial stake in E.ON create attractive, sustainable prospects for our company, our employees and our shareholders.”
E.ON and RWE expect to be strategically well positioned after this transaction. Both companies are convinced that their positions in their respective core businesses can be further strengthened, with their solid financial foundations providing a basis for sustainable profit growth and attractive dividends in the long term.
Made opimistic by the high earnings quality of its regulated business post transaction, E.ON’s executive board has reiterated its intention to maintain a strong BBB rating. RWE will be able to underpin its investment-grade rating based on additional stable cash flows from its renewables business.
E.ON’s straightforward corporate structure will facilitate innogy’s integration. E.ON expects significant synergies amounting to €600 to €800 million annually by 2022. Initial calculations show that the integration process will lead to a reduction of a maximum of 5,000 jobs of the then significantly more than 70,000 jobs at the enlarged E.ON. This equates to less than 7 percent. At the same time, E.ON anticipates to create thousands of new jobs in the coming decade..

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