Germany’s energy sector faces changes with announcement of complex RWE E.ON Deal

This weekend has seen the announcement of a deal between Germany’s RWE and E.ON power companies that will break up the RWE renewables spin off, Innogy, which listed 25 per cent of its shares on the Frankfurt and Xetra stock exchanges back in October 2016. This deal will ultimately mean that E.ON relinquishes its renewable energy assets to focus on operating electricity grids and retail. Since 2011, when Angela Merkel announced that nuclear power would ultimately be phased out of Germany as a result of Japan’s Fukushima disaster, and with the growth of renewable energy in Germany, both companies have seen their profits suffer.

The end game of both companies will only be reached via a series of interlinked transactions, with relatively little cash changing hands but with a significant asset value; step one will see E.ON acquire 76 per cent of Innogy for around EUR 5bn; step two will then see RWE buy all of E.ON’s renewable assets (including those it has just sold to E.ON) for EUR 1.5bn. The end result will see RWE moving back into the area of renewable energy which it had moved away from with the spin out of Innogy less than two years ago, while E.ON will focus on grid operation and retail energy sales.

This isn’t a deal that will conclude quickly. It is complex and will require regulatory clearance - not that regulatory clearance is expected to be an issue, according to sources close to the deal. However, when transactions are as complex as this, there is always the chance of a curve ball arising somewhere.