Dating back to 2014, German energy conglomerate E.ON SE adopted a new corporate strategy called “Empowering customers. Shaping markets.” This was widely perceived as a response to ‘Germany’s Energiewende’, a radical shift from conventional fossil and nuclear energy to renewables. E.ON executives and its supervisory board perceived that over the past years, two energy worlds have emerged, both being very different and hence not easy to deal with concurrently. Following their new strategy, the decision to separate the new energy worlds from the old energy world was implemented by creating two independent companies on January 1st, 2016. For the first time in its history of supplying German and European consumers with energy, E.ON was solely focusing on renewables, energy networks and customer solutions, while Uniper SE, which began operating independently on January 1st, 2016, is focusing on conventional power generation and global energy trading. Further, E.ON announced to curb from fossil energy in the future by slowly divesting from Uniper. This decision and the following separation marked the first signs of a wide-reaching transformation for E.ON and the whole energy industry.
Following its announcement to move away from fossil energy, E.ON gave out ownership to its shareholders by floating a 53,35% stake in Uniper shares at the Frankfurt Stock Exchange on September 12th, 2016. For every ten shares of E.ON, shareholders received one new registered no-par-value share of Uniper SE. In its listing prospectus, Uniper announced that its “shares will be determined by way of an opening auction on the morning of the listing day”. It further reads that neither E.ON nor Uniper will give any guidance on the first price. The shares started trading at €10.015 per share and climbed roughly 10% to €11.02 before bouncing back to €10.75 the same day. This valued the company at €3.9bn. Through this IPO, E.ON gave its shareholders the opportunity to decide which part of the company to stay invested in. Eventually, in September 2018, E.ON decided to fully divest from the conventional power production industry by selling its remaining 46.65% stake in Uniper to Finnish rival Fortum for €22 per share, yielding to proceeds of approximately €3.8bn from the transaction. JP Morgan and Morgan Stanley acted as advisors to E.ON in their listing of Uniper.
RWE, E.ON’s closest rival in the German energy sector, carried out a similar restructuring during that time by forming a new subsidiary for its renewables, grids and retail businesses called Innogy. RWE carried out an IPO of Innogy on October 8th, 2016 but remained the single largest shareholder still holding 77% of the firm. Innogy shares were floated at the Frankfurt Stock Exchange at €36 and remained stable during the day which valued the company at €40.7bn, making it Germany’s largest IPO in nearly 16 years. This valuation makes Innogy the highest valued German utilities firm based on EBITDA multiple. The transaction was mostly thought of as shoring up RWE’s finances, raising about €3bn from the issue. Innogy hired a consortium of underwriters including Bank of America Merrill Lynch, UBS, BNP Paribas and Credit Suisse. As mentioned before, Innogy’s IPO came one month after Uniper’s listing. Both firms reacted to the Energiewende through cost cuts and by splitting themselves into two separate companies each. While the transactions are similar in their transformational nature, E.ON spun out its conventional power division into Uniper, while RWE did the same with its renewables business, creating Innogy. After all, the prospects for both newly independent firms looked very different during the times of the listings.
On March 10th, 2018, The Financial Times reported that E.ON would acquire Innogy from RWE along with a series of asset swaps in a complex €43bn deal that would have reshaped the German energy sector. On March 12th, 2018, the two firms agreed that E.ON would have acquired RWE’s 76.8% stake in Innogy via a far-reaching exchange of assets and businesses. The transaction involved two stages. In the first step, E.ON acquired RWE’s 76.8% stake in Innogy, which was advised by Lazard, in an all-cash offer at €40 a share, respecting Innogy’s dividend. This transaction values Innogy’s equity at €22bn, with a further assumed debt of €19.1bn. In the second step, E.ON handed RWE its own renewable energy assets as well as Innogy’s. RWE received new shares in E.ON, representing 16.7% of its rival. The transaction leaves E.ON focused on regulatory energy networks and retail customers making it Europe’s first formerly integrated utility to focus entirely on meeting the demands of customers across Europe. RWE in contrast will be Europe’s second-largest energy producer. Consequently, the transaction, which had a total value of €60bn, created two European leaders. E.ON expects to create synergies of €600m to €800m annually by 2022. E.ON 2018 revenue of €30.2bn was roughly €7bn lower than in 2017, which results from the fact that the renewables segment is discontinued. However, their adjusted EBITDA of roughly €3bn was only slightly lower than the year before and on the upper end of the forecast range. For 2019, the company expects a solid development in its share price, which is grounded in the solid investment case, especially for long-term, sustainability-oriented investors.
Interestingly, three of the largest European utilities, namely Enel, Iberdrola and Engie all considered bids for Innogy during the last year. This transaction leaves RWE with the opportunity to diversify away from its exposure to fossil-fuel generation with the newly acquired renewables businesses. This marks a stark shift from RWE’s actions of two years ago, when they pulled out of renewables by IPOing Innogy. The transaction is still subject to regulators’ approval and is expected to close by mid-2019. However, since most of the transaction affects regulated assets, where the consumer is protected by regulatory authorities, few antitrust issues are expected. After the transaction closes, E.ON will focus on two business segments, being highly efficient energy networks and innovative customer solutions. Once completed, E.ON will end the process of transforming itself from a vertically-integrated to a horizontally-integrated utilities provider, that was first started in 2014 by adopting their new corporate strategy.
Maximilian Schneider
Following its announcement to move away from fossil energy, E.ON gave out ownership to its shareholders by floating a 53,35% stake in Uniper shares at the Frankfurt Stock Exchange on September 12th, 2016. For every ten shares of E.ON, shareholders received one new registered no-par-value share of Uniper SE. In its listing prospectus, Uniper announced that its “shares will be determined by way of an opening auction on the morning of the listing day”. It further reads that neither E.ON nor Uniper will give any guidance on the first price. The shares started trading at €10.015 per share and climbed roughly 10% to €11.02 before bouncing back to €10.75 the same day. This valued the company at €3.9bn. Through this IPO, E.ON gave its shareholders the opportunity to decide which part of the company to stay invested in. Eventually, in September 2018, E.ON decided to fully divest from the conventional power production industry by selling its remaining 46.65% stake in Uniper to Finnish rival Fortum for €22 per share, yielding to proceeds of approximately €3.8bn from the transaction. JP Morgan and Morgan Stanley acted as advisors to E.ON in their listing of Uniper.
RWE, E.ON’s closest rival in the German energy sector, carried out a similar restructuring during that time by forming a new subsidiary for its renewables, grids and retail businesses called Innogy. RWE carried out an IPO of Innogy on October 8th, 2016 but remained the single largest shareholder still holding 77% of the firm. Innogy shares were floated at the Frankfurt Stock Exchange at €36 and remained stable during the day which valued the company at €40.7bn, making it Germany’s largest IPO in nearly 16 years. This valuation makes Innogy the highest valued German utilities firm based on EBITDA multiple. The transaction was mostly thought of as shoring up RWE’s finances, raising about €3bn from the issue. Innogy hired a consortium of underwriters including Bank of America Merrill Lynch, UBS, BNP Paribas and Credit Suisse. As mentioned before, Innogy’s IPO came one month after Uniper’s listing. Both firms reacted to the Energiewende through cost cuts and by splitting themselves into two separate companies each. While the transactions are similar in their transformational nature, E.ON spun out its conventional power division into Uniper, while RWE did the same with its renewables business, creating Innogy. After all, the prospects for both newly independent firms looked very different during the times of the listings.
On March 10th, 2018, The Financial Times reported that E.ON would acquire Innogy from RWE along with a series of asset swaps in a complex €43bn deal that would have reshaped the German energy sector. On March 12th, 2018, the two firms agreed that E.ON would have acquired RWE’s 76.8% stake in Innogy via a far-reaching exchange of assets and businesses. The transaction involved two stages. In the first step, E.ON acquired RWE’s 76.8% stake in Innogy, which was advised by Lazard, in an all-cash offer at €40 a share, respecting Innogy’s dividend. This transaction values Innogy’s equity at €22bn, with a further assumed debt of €19.1bn. In the second step, E.ON handed RWE its own renewable energy assets as well as Innogy’s. RWE received new shares in E.ON, representing 16.7% of its rival. The transaction leaves E.ON focused on regulatory energy networks and retail customers making it Europe’s first formerly integrated utility to focus entirely on meeting the demands of customers across Europe. RWE in contrast will be Europe’s second-largest energy producer. Consequently, the transaction, which had a total value of €60bn, created two European leaders. E.ON expects to create synergies of €600m to €800m annually by 2022. E.ON 2018 revenue of €30.2bn was roughly €7bn lower than in 2017, which results from the fact that the renewables segment is discontinued. However, their adjusted EBITDA of roughly €3bn was only slightly lower than the year before and on the upper end of the forecast range. For 2019, the company expects a solid development in its share price, which is grounded in the solid investment case, especially for long-term, sustainability-oriented investors.
Interestingly, three of the largest European utilities, namely Enel, Iberdrola and Engie all considered bids for Innogy during the last year. This transaction leaves RWE with the opportunity to diversify away from its exposure to fossil-fuel generation with the newly acquired renewables businesses. This marks a stark shift from RWE’s actions of two years ago, when they pulled out of renewables by IPOing Innogy. The transaction is still subject to regulators’ approval and is expected to close by mid-2019. However, since most of the transaction affects regulated assets, where the consumer is protected by regulatory authorities, few antitrust issues are expected. After the transaction closes, E.ON will focus on two business segments, being highly efficient energy networks and innovative customer solutions. Once completed, E.ON will end the process of transforming itself from a vertically-integrated to a horizontally-integrated utilities provider, that was first started in 2014 by adopting their new corporate strategy.
Maximilian Schneider