E.ON reaches agreement in principle with RWE to acquire innogy

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For its part, Eon will emerge with the retail and network businesses of Innogy, and will also acquire the same unit from RWE.

German utility company E.ON is now in control of the renewable energy segment created by its rival, RWE, in a landmark, multi-billion dollar deal, they said. The companies had to adapt, he told the Rheinische Post newspaper.

RWE plans to sell its 76.8 per cent stake in Innogy to EON in a deal that includes "a far-reaching exchange of assets and participations", said EON, which also plans a cash offer to the remaining Innogy shareholders.

EON has spun off its fossil fuel operations and invested heavily in renewables, while RWE remains the biggest power producer. The deal requires the approval of the board of directors at Eon and RWE.

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"This looks like an advantageous step for E.ON at first glance", Thomas Deser, Fund Manager at Union Investment, told Reuters. The renewables businesses of E.ON and RWE would be brought together under the umbrella of RWE. Further, RWE will receive the minority interests now held by E.ON's subsidiary PreussenElektra in the RWE-operated nuclear power plants Gundremmingen and Emsland. RWE will pay another 1.5 billion euros to E.ON to close a valuation gap that results from the complex structure of the asset swaps.

Should the prospective deal go ahead - the acquisition still needs to be approved by European Union regulators and the companies' respective boards - it would represent a significant shift for both organisations and the German energy sector more generally. In the second stage, RWE will take over E.On's renewables business, .

RWE would receive the Innogy renewables and gas storage business and Innogy's stakes in the Austrian energy supplier Kelag.

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