(Reuters) - Utilities E.ON (EONGn.DE) and RWE (RWEG.DE) on Tuesday presented several new details about their landmark deal to break up Innogy (IGY.DE), Germany’s largest power firm, to beef up their own businesses.
The complex deal, which sources said was put together in just two months, transforms RWE into Europe’s third-largest renewables group and E.ON into the continent’s largest network and retail energy players.
Below are some are some questions and answers about Germany’s biggest power sector transformation since the country’s decision to abandon nuclear power in 2011:
Yes, but it is limited. E.ON will get RWE’s 76.8 percent of Innogy which will give it full control over its assets and also result in a domination agreement and profit and loss transfer agreement. E.ON has offered 40 euros ($49.47) per share for the remaining 23.2 percent stake, a premium of 16 percent to the closing price before the offer was announced. Activists can bet on a higher bid in a squeeze out but E.ON does not need 100 percent at all costs. Its CEO Johannes Teyssen on Tuesday said the group was not exposed to “funny ideas” by potential activist investors.
As part of the deal, RWE will get a 16.67 percent stake in E.ON to become the group’s largest shareholder. It has a right to nominate one supervisory board member and has committed to not raise the stake or sell it to a competitor. It is unclear how firm these commitments are and whether RWE, at some point in the future, could find a way to raise its stake, which is worth 3.38 billion euros currently.
Based on pro-forma figures for 2017, E.ON’s economic debt will almost double to 35 billion euros as part of the transaction. The company expects this to be cushioned by the expected sale of its 46.65 stake in Uniper (UN01.DE) to Fortum (FORTUM.HE). RWE’s debt will increase by 2.8 billion euros, mostly through assumed nuclear liabilities and provisions to dismantle old wind farms.
Though the deal, RWE has room to maneuver strategically and actively develop one of Europe’s largest renewable portfolios. Its 76.8 percent stake in Innogy was a potent source of income but gave it no real influence over the subsidiary with only one of RWE’s management board members sitting on Innogy’s supervisory board. A profit warning by Innogy in December, triggering a major sell-off in its shares as well as those of its parent RWE, exposed the massive risk of that close relationship. “Long-term, RWE was too dependent on Innogy and had too few options to act,” said one person who worked on the transaction.
In a first step, E.ON will launch a 5.2 billion euro takeover bid for Innogy’s minority shareholders in Q2 2018. Closure of the whole deal will take place in two steps next year. The first closure, expected in H1 2019, will see RWE transfer its 76.8 percent Innogy stake to E.ON along with a 1.5 billion euro payment, the purchase of some of E.ON’s nuclear plant stakes. E.ON will issue 440 million shares to give RWE a 16.67 percent stake. The second closure in H2 2019 will seal RWE’s takeover of E.ON’s and Innogy’s renewable assets, as well as Innogy’s gas storage assets and a stake in Austria’s Kelag [KELAG.UL].
WHAT’S THE BREAK-UP OF E.ON’S SYNERGIES?
E.ON sees 600-800 million euros of synergies from the deal, which will be fully realized in 2022. Most of those will come from savings in the retail business as well as corporate functions and information technology. The minority will be realized in the grids and networks business.
($1 = 0.8085 euros)
Reporting by Christoph Steitz, Tom Kaeckenhoff and Arno Schuetze; editing by David Evans