RWE, E.ON reshape German power sector in Innogy deal

RWE, E.ON reshape German power sector in Innogy deal

Innogy saw its stock jump 16 percent in pre-market trade on Monday after parent RWE and rival E.ON announced plans to divide up the operations of Germany's largest energy company by market value.

Under the deal still subject to approval by anti-trust authorities, RWE would receive the Innogy renewables and gas storage business as well as Innogy's stake in Austrian energy supplier Kelag. The companies had to adapt, he told the Rheinische Post newspaper. Various other business activities would also be exchanged, while RWE would also make a €1.5 billion cash payment to E.On under the terms of the agreement. RWE kept 76.8 percent of Innogy after the 2016 carve-out.

Background to the deal is the ongoing transformation of utilities especially in Germany, which forced RWE and E.ON to spin-off their conventional assets. Further, RWE will receive the minority interests now held by E.ON's subsidiary PreussenElektra in the RWE-operated nuclear power plants Gundremmingen and Emsland.

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Should the prospective deal go ahead - the acquisition still needs to be approved by European Union regulators and the companies' respective boards - it would represent a significant shift for both organisations and the German energy sector more generally.

Analysts at Jefferies said while helping E.ON achieve scale and efficiencies in networks and retail, and transforming RWE into a leading renewables and security of supply provider, a deal "would involve another two years in costly restructuring".

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.