The European Commission has given the green light for E.ON SE to take over rival Innogy SE, clearing the way for one of the most transformative deals in the European utilities sector in recent years.
The approval marks the final act of a complicated asset swap, valued at more than €40 billion, that was kicked off by E.ON and Innogy parent RWE AG roughly 18 months ago. Under the deal, E.ON is set to take over Innogy's energy networks and consumer businesses, while RWE will absorb both companies' renewables assets.
The commission's sign-off is still conditional on E.ON fulfilling a series of remedies it offered to assuage competition concerns, the commission said in a statement on Sept. 17. The utility had offered to divest most of its heating electricity customers and all its electric charging stations in Germany, as well as its entire power and gas supply business in the Czech Republic and part of its electricity supply business in Hungary.
"We would have liked to continue these businesses, but we are committed to carry out the measures agreed with the European Commission. Considering the new E.ON's outstanding development opportunities, these concessions are tolerable," said E.ON CEO Johannes Teyssen, who will stay in his role alongside CFO Marc Spieker. E.ON is planning to integrate Innogy by buying out the company's remaining minority shareholders.
The commission approved RWE's part of the deal in February but launched an in-depth investigation into the Innogy acquisition. Municipal utilities and other smaller suppliers in Germany have complained that the deal will obliterate any competition in the country's retail market. But the commission said its probe did not turn up any evidence of a loss of significant competition in Germany's "highly fragmented" market. It similarly found no reason for concern in Slovakia, where it said suppliers are regionally focused.
"The commitments offered by E.ON will ensure that the merger will not lead to less choice and higher prices in the countries where these companies operate," Margrethe Vestager, the commissioner in charge of competition policy, said.
Even though it was widely expected, analysts at Barclays said the final regulatory approval should boost both companies, which have said their narrower focus will make them more competitive.
"There was still some uncertainty whether the Innogy deal would really be approved, but more importantly this should move investors' focus even more on to RWE's transformation potential becoming Europe's third largest renewables player and the €600-800 million Innogy synergy potential for E.ON," the Barclays analysts said in a note.
Under the terms of the deal, RWE will now transfer its 76.8% stake in Innogy to E.ON and receive an equity interest of 16.7% in E.ON in return, along with a seat on E.ON's supervisory board, to be filled by RWE CEO Rolf Martin Schmitz. RWE's CFO, Markus Krebber, told Reuters recently that the company may look to sell on its minority stake in E.ON after the deal.
Along with E.ON's and Innogy's renewables assets, RWE is also taking over E.ON's minority interests in the Emsland and Gundremmingen nuclear stations in Germany, as well as Innogy's gas storage business and stake in Austrian utility KELAG Kärntner Elektrizitätswirtschafts AG. RWE will also pay E.ON €1.5 billion in compensation.
Schmitz said the company was starting "a new, exciting chapter in our company's history." The utility will hold more than 9 GW of installed renewables capacity after the swap, alongside its large portfolio of conventional generation. It plans to invest a net €1.5 billion in expansion every year, focused on markets including the U.S.
"Scale plays a major role in achieving success when competing in the field of renewable energy at a global level," Krebber said. "We are powerful enough for this market — in terms of financial strength, strategy and personnel."
