FRANKFURT Germany's biggest utility E.ON (EONGn.DE) announced plans on Sunday to split in two and spin off most of its power generation, energy trading and upstream businesses, responding to a crisis that has crippled the European energy sector.
E.ON said it wanted to focus on its renewable activities, regulated distribution networks and tailor-made energy efficiency services, citing "dramatically altered global energy markets, technical innovation, and more diverse customer expectations".
"E.ON's existing broad business model can no longer properly address these new challenges," Chief Executive Johannes Teyssen said in a statement.
Germany's power sector has been in turmoil, hit by a prolonged period of weak energy demand, low wholesale power prices and a surge in renewable energy sources which continue to replace gas-fired and coal-fired power plants.
E.ON said it would prepare next year for the listing of the new company created by its breakup, with the spin-off taking place after its 2016 annual general meeting.
The spin-off will not be accompanied by a job-cutting programme, E.ON said, adding about 40,000 of its employees would remain with the parent group, while the remaining 20,000 would join the new company.
The company did not provide an earnings breakup for the two future companies.
E.ON's generation, upstream and global commodities units, the latter of which includes trading, accounted for about 35 percent of its 9.32 billion euros ($11.60 billion) in earnings before interest, tax, depreciation and amortisation (EBITDA) in 2013. Renewables and regulated businesses alone accounted for 54 percent.
E.ON will hold a news conference about its plans, which will include investing more in wind and solar power, at 1000 GMT on Monday.
In a first step, E.ON said it would transfer a majority of the new company's capital stock to its shareholders, avoiding the sale of new shares on the open market as is the case during an initial public offering (IPO).
Instead, investors in E.ON will receive shares in the new company in addition to holding shares in the parent company, much in the same way that Bayer (BAYGn.DE) shareholders received shares in speciality chemicals unit Lanxess (LXSG.DE).
E.ON, which has 31 billion euros in net debt, said it would dispose of its minority stake in the new company over the medium term to bolster its finances.
By choosing to spin off power generation, E.ON rids itself of a sector that has been hard hit by Germany's decision to boost renewables at the expense of gas, coal and nuclear power plants.
The company also said it would post a substantial net loss for 2014 due to additional charges of about 4.5 billion euros (3.5 billion pounds) in the fourth quarter, citing its assets in southern Europe as well as loss-making power plants.
E.ON said its supervisory board had approved a proposal to pay a dividend of 0.50 euro per share for 2014 and 2015, down from 0.60 euro paid for 2013.
E.ON said it had agreed to sell its businesses in Spain and Portugal to Australian energy infrastructure investor Macquarie (MQG.AX) for 2.5 billion euros, adding that it was considering selling its business in Italy.
The group also said it would conduct a strategic review of its exploration and production business in the North Sea.
(Additional reporting by Emma Thomasson in Berlin and Daniela Pegna in Frankfurt; Editing by Maria Sheahan, David Clarke and Eric Walsh)