Germany’s biggest utility firm, E.ON, has announced plans to split in two and spin off most of its power generation, energy trading and upstream businesses, responding to a crisis that has crippled the European energy sector.
E.ON said it wanted to focus on its renewable activities, regulated distribution networks and tailor-made energy efficiency services, citing “dramatically altered global energy markets, technical innovation, and more diverse customer expectations”.
“E.ON’s existing broad business model can no longer properly address these new challenges,” the chief executive, Johannes Teyssen, said in a statement.
Germany’s power sector has been in turmoil, hit by a prolonged period of weak demand, low wholesale prices and a surge in renewable energy sources which continue to replace gas-fired and coal-fired power plants.
E.ON said it would prepare next year for the listing of the new company created by its breakup, with the spin-off taking place after its 2016 annual general meeting.
The split will not be accompanied by job cuts, E.ON said, adding that about 40,000 employees would remain with the parent group, while the remaining 20,000 would join the new company.
E.ON did not provide an earnings breakup for the two future companies. E.ON’s generation, upstream and global commodities units, the last of which includes trading, accounted for about 35% of its €9.32bn (£7.4bn) in earnings before interest, tax, depreciation and amortisation in 2013. Renewables and regulated businesses alone accounted for 54%.
E.ON will hold a news conference on Monday about its plans, which will include investing more in wind and solar power.
In a first step, the firm said it would transfer a majority of the new company’s capital stock to its shareholders, avoiding the sale of new shares on the open market as is the case during an initial public offering. Instead, investors will receive shares in the new company in addition to holdings in the parent firm, in much the same way that Bayer shareholders received shares in speciality chemicals unit Lanxess. E.ON, which has €31bn in net debt, said it would dispose of its minority stake in the new company over the medium term to bolster its finances.
By choosing to spin off power generation, E.ON rids itself of a sector that has been hard hit by Germany’s decision to boost renewables at the expense of gas, coal and nuclear power plants.
The company also said it would post a substantial net loss for 2014 due to additional charges of about €4.5bn in the fourth quarter, citing its assets in southern Europe as well as loss-making power plants.
E.ON said its supervisory board had approved a proposal to pay a dividend of €0.50 per share for 2014 and 2015, down from €0.60 paid for 2013.
It said it had agreed to sell its businesses in Spain and Portugal to Australian energy infrastructure investor Macquarie for €2.5bn, adding that it was considering selling its business in Italy.
The group also said it would conduct a strategic review of its exploration and production business in the North Sea.