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German utility giants RWE, E.ON strike complex asset exchange deal worth €43B

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German utility giants RWE, E.ON strike complex asset exchange deal worth €43B

German energy companies E.ON SE and RWE AG agreed to a multibillion-euro asset swap on March 11 that will effectively overhaul the country's utility sector.

Central to the deal is E.ON acquiring RWE's majority stake in innogy SE and then purchasing the rest of innogy in a public takeover offer. RWE would receive a 16.67% interest in E.ON, as well as generation assets from E.ON and innogy.

The net result will be E.ON becoming an end-user focused company, while RWE gains a stake in E.ON and shifts its business toward generation. The Financial Times valued the agreement at €43 billion.

Under the terms announced March 11, E.ON would buy RWE's 76.8% stake in innogy SE and then make a public takeover offer in cash for the remaining ownership in innogy. That offer would be valued at €40 per share after including €3.24 per share of assumed dividends for fiscal 2017 and 2018.

RWE would receive 16.67% of the equity in E.ON by way of a 20% capital increase. After E.ON takes control of innogy, E.ON would transfer "substantially all" of its renewables generation business to RWE. E.ON would also transfer innogy's renewables business, innogy's gas storage business and innogy's participation in Austrian utility Kelag. RWE would also receive the minority interest held by an E.ON subsidiary in the RWE-operated nuclear plants Gundremmingen and Emsland. RWE would pay E.ON €1.5 billion in cash for those assets.

RWE's stake in innogy would be valued at €40.00 per share. Both boards need to approve the agreement. Regulatory and antitrust approvals are also necessary.