EON SE will shed as many as 5,000 jobs in the deal to take over Innogy SE, a move that marks the biggest shakeup in Germany’s energy business in years.
The transaction agreed with its rival RWE AG values Innogy at 22 billion euros ($27.1 billion) and will sharpen the focus of Germany’s leading two electricity and natural gas providers, according to a joint statement on Monday. EON billed itself as the first formerly-integrated utility to focus entirely on meeting needs of 50 million customers across Europe. RWE said it doesn’t expect any net job losses.
EON targets savings of 600 million euros to 800 million euros by 2022. It would become a grid manager and power provider focused on meeting Chancellor Angela Merkel’s ambitious targets to cut pollution. For RWE, which is Europe’s biggest generator of electricity, the deal would provide it with renewables as an alternative to its current generation network that now is focused mainly on coal and nuclear power.
“It’s EON’s first real growth step for more than a decade,” EON Chief Executive Officer Johannes Teyssen said at a press conference on Tuesday in Essen, where all three of the utilities are based. “Our renewables businesses will find a promising home within a larger platform that will offer the necessary scale of size.”
RWE CEO Rolf Martin Schmitz said “size is crucial” to exploit business opportunities as clean energy subsidies disappear and that conventional power assets will become “the beating heart of any future-proofed industrial society.” Markus Krebber, finance director for RWE, said in a Bloomberg Television interview that the deal “will entirely transform our company” by doubling earnings before interest, taxes, depreciation and amortization.
EON shares surged more than 6 percent, continuing the biggest two-day increase in more than a year. RWE was up almost 3 percent after a 14 percent gain Monday, and Innogy was little changed just below the 40 euro a share offer price.
Merkel is seeking to phase out coal-fired power generation in Germany and wants to deliver a plan by the end of this year. RWE owns half of the nation’s coal-fired power capacity.
“The new RWE and EON entities provide investors with clearer differentiated opportunities,” Jonas Rooze, an analyst at Bloomberg New Energy Finance, wrote in a note to clients. “Investors can take stakes in RWE if they want power generation exposure, and in EON for distribution and retail exposure.”
EON’s voluntary takeover offer for Innogy will probably be completed by the middle of 2019, the companies said. RWE may take control of EON’s renewable energy assets by the end of 2019, when the full transaction is due to close subject to approval from antitrust authorities.
Perella Weinberg Partners and BNP Paribas advised EON, with Linklaters acting as legal council. BofA Merrill Lynch and Citigroup advised RWE, and Rothschild provided a fairness opinion to RWE’s supervisory board and Freshfields Bruckhaus Deringer acting as legal council.
RWE will end up with EON’s renewables business, minority stakes in two nuclear power plants, Innogy’s gas storage business and a stake in an Austrian energy supplier. Including the asset swaps, the whole transaction has an enterprise value of about 60 billion euros.
RWE reported an increase in full-year earnings on Tuesday while forecasting a decline in financial performance in 2018. The utility proposes a dividend of 1.5 euros for 2017, which includes a 1 euro special dividend. For 2018, the goal is to increase the ordinary dividend to 0.70 euros.
EON also released earnings for 2017 that beat analysts forecasts, bringing forward its announcement by two days. Bloomberg News first reported the deal on March 10, with confirmation from the companies on Sunday and a full statement with terms of the transaction released on Monday evening. RWE reports earnings on Tuesday.
EON said its adjusted net income was 1.5 billion euros last year, above the median forecast collected by Bloomberg for of 1.33 billion euros.