EON to Acquire RWE's Innogy, Upending German Energy Industry

• RWE will emerge owning minority stake in enlarged EON
• Deal sees RWE taking both Innogy and EON’s renewable assets

EON SE agreed to acquire Innogy SE from German rival RWE AG, transforming the energy industry as Europe’s largest economy continues its switch to renewable power.

The deal continues the transformation of competitors RWE and EON started by German Chancellor Angela Merkel’s shift toward an economy powered by renewable energy instead of nuclear and fossil fuels. Once among the most stable profit contributors in Germany, the two utility giants were forced to take billions of euros in writedowns and break themselves up after German wholesale power prices tumbled.

The agreement sees EON acquiring all of RWE’s 76.8 percent stake in Innogy, giving RWE 16.7 percent of EON’s equity in return. EON will also make an offer to Innogy’s minority shareholders that values the company at 40 euros ($49.22) a share, or about 22 billion euros in total.

RWE will end up with EON’s minority stakes in two nuclear power plants, Innogy’s gas storage business and Innogy’s stake in an Austrian energy supplier. RWE will make a cash payment to EON of 1.5 billion euros. The transaction will be enacted in several steps, subject to regulatory and board approvals.

Energy Shift

Germany’s energy shift has already led to a slew of dealmaking in the industry. EON is in the process of selling its 47 percent stake in conventional power utility Uniper SEto Finland’s Fortum Oyj.

Innogy had attracted interest from other European utilities, including Engie SE, Enel SpA and Iberdrola SA, the people said. Macquarie Group Ltd. may acquire smaller businesses including in Eastern Europe from the combined entity, they said.

Engie, Enel and Iberdrola couldn’t be immediately reached outside of regular business hours. Macquarie declined to comment

E.ON is Germany’s biggest investor in renewable energy, with more than 10 billion euros in wind solar and storage, while RWE is the country’s biggest power producer, though with a heavy focus on conventional sources. Innogy has sought to broaden its global footprint, with wind and solar assets that stretch from the U.S. to Australia.

Acid Attack

A deal with E.ON would come as Innogy is without permanent leadership. Chief Executive Officer Peter Terium left the company in December following a profit warning and trouble in the U.K. business. Uwe Tigges, Innogy’s human resources officer and a management board member, has assumed the CEO role on a temporary basis. Chief Financial Officer Bernhard Guenther became the victim of an acid attack last week and was admitted to the hospital with severe injuries.

Innogy’s full first year on the German stock exchange hasn’t given investors any returns, falling 1 percent in the course of last year. So far in 2018, the stock is up 6 percent.

Bloomberg.com