German utilities E.ON, RWE in energy market shake-up

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RWE would receive the Innogy renewables and gas storage business and Innogy's stakes in the Austrian energy supplier Kelag AG. Uwe Tigges, chief executive officer at innogy, said it would be commenting on announcements from RWE and E.On "in due course".

German energy company RWE has reached a preliminary agreement on the sale of its controlling stake in Innogy to German utility E.On, RWE announced on Sunday.

The aim is for E.ON to focus on the retail, energy networks and customer solutions business, while RWE would take over the renewables power generation of both companies.

EON has spun off its fossil fuel operations and invested heavily in renewables, while RWE remains the biggest power producer.

Before striking a deal with E.ON, RWE held talks with European peers Enel and Engie and came close to a deal with Spain's Iberdrola before Christmas, people familiar with the matter said.

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"It's good if there are competitive and internationally oriented energy providers in Germany".

Cash exchanged includes about €5 billion ($6.2 billion) for E.ON to buy out Innogy's minority shareholders, and RWE paying E.ON €1.5 billion ($1.85 billion), with the rest of the deal valued in shares and asset swaps.

Under Merkel, Germany made a decision to phase out nuclear power by 2022 as a direct effect of the disaster at the Fukushima plant in Japan, dealing a major blow to E.ON and RWE and forcing a far-reaching strategy rethink.

The complex transaction planned in various steps would still need the approval of both companies supervisory boards as well as various regulatory approvals, the statement said. As a result, it does not believe the E.ON deal with RWE will affect its own merger.

While the two companies were in touch with each other over the last year, concrete negotiations about Innogy only picked up this year, the sources said.