Eon’s €43 billion Acquisition of Innogy, Asset Swap with RWE

By Vincent Wess (WHU – Otto Beisheim School of Management) and Steven Skomra (Georgetown University) - Date: 14/12/2019


Overview of the deal

  • Acquirer: E.ON SE

  • Target: Innogy SE

  • Seller: RWE AG

  • Enterprise value: EUR 36,970.5

  • Announcement date: 12/03/2018

  • Date of approval: 19/09/2019

  • Acquirer advisors: BNP Paribas SA, Perella Weinberg Partners LP

  • Target advisors: Deutsche Bank AG, Goldman Sachs & Co. LLC, Lazard

  • Seller advisors: Bank of America Merrill Lynch, Citi, Rothschild & Co

Following the Fukushima disaster in 2011, German energy policy embarked on a radical transition, known as “Energiewende” (“energy transition”) which included that all nuclear power stations were to be removed from the system by 2022 and large subsidies for renewable energy production. As a result, the two largest utilities of Germany, Eon and RWE, saw themselves faced with two challenges. On the one hand, their conventional power was squeezed out of the market by heavily subsidised wind and solar energy which put downward pressure on wholesale energy prices. On the other hand, the country’s four largest utilities were ordered to pay a combined EUR 23.6bn into a state-controlled fund to cover the costs of storing Germany’s nuclear waste which was EUR 6.2bn more than the four had provisioned for.

Being seen as near-hopeless basket cases, the two competitors undertook some of the most radical restructurings Germany had seen in a while. Eon spun off its coal and gas-fired power stations, as well as its energy trading business in a company named Uniper, while Eon retained the cleaner, greener businesses – renewables, energy distribution and customer solutions – which resembles the idea of a bad bank. RWE went the other way and spun of its green generation assets coupled with its grid business in a company called Innogy which became Germany’s largest utility company by market value.

However, uncertainty in the sector remained and only 17 months after Innogy’s IPO, RWE and Eon announced a new deal that would transform Germany’s energy landscape once again and for both companies, the deal ends the era of vertically integrated utilities that generate energy, own the supply grid and control the relationship with the customer.

What we are presenting to you is one of the most creative design deals in German industrial history and a unique opportunity” - Johannes Teyssen, Eon Chief Executive

Company Details (Eon)

Eon was created in 2000 through the merger of VEBA and VIAG. In 2016, it separated its conventional power generation and energy trading operations into Uniper while retaining retail, distribution and nuclear operations. Eon sold its stake in Uniper through a stock market listing and sold the remaining stock to the Finnish utility Fortum in 2018. Today, the company states that it operates with three main business units: Energy networks and customer solutions, renewables and German nuclear energy.

- Created: 2000, headquartered in Essen, Germany

- CEO: Johannes Teyssen

- Number of employees: 43,302 (2018)

- Market Cap: EUR 19.891bn - EV: EUR 31.078bn

- LTM Revenue: EUR 28,539bn – LTM EBITDA: EUR 3,482bn

- LTM EV/Revenue: 1.08x - LTM EV/EBITDA: 8.84x

Company Details (RWE)

RWE is Germany’s second largest utilities company. It was founded in 1898 and was active in all steps of the value chain in energy markets until it carved out its business units for supply, grids and renewable generation in 2016. Prior to Innogy’s IPO, the company was highly leveraged and challenged by falling wholesale energy prices and high storage costs. Through the IPO, RWE gained €2.6bn in cash and a 76% stake in what became Germany’s largest energy company that it could sell off if it needed cash for investments or to meet its nuclear waste storage liabilities.

- Founded: 1898

- CEO: Rolf Martin Schmitz

- Number of employees: 17,748 (2018)

- Market Cap: EUR 17.366bn - EV: 20,979

- LTM Revenue: EUR 13.595bn – LTM EBITDA: EUR 1.075bn

- LTM EV/Revenue: 1.54x - LTM EV/EBITDA: 19.52x

Deal Structure and Mechanics

The transaction will see Eon acquire Innogy, followed by a series of asset swaps that will radically transform both groups’ business. First, Eon will get RWE’s 76.8% stake in Innogy and will then make an all-cash offer of €40.00 per share to innogy’s minority shareholders. In return, Eon will then hand back innogy’s renewable energy assets as well as its own to RWE. Furthermore, RWE will gain a share of 16.67% in the combined entity and the minority stakes held by Eon’s subsidiary PreussenElektra in the RWE-operated nuclear power plants Emsland and Gundremmingen. RWE will also make a cash payment of €1.5bn to Eon. Although the transaction has a value of about €43bn, only little cash will therefore change hands. Eon’s buyout offer for Innogy’s minority investors will cost about €5bn and RWE will pay €1.5bn in cash to Eon.

The total offer value of €40.00 per share will consist of an offer price of EUR 36.76 per share, plus the payment of assumed dividends from Innogy of a total of €3.24 per share for the fiscal years 2017 and 2018. This price represents a 15.8% premium over Innogy’s share price as of 09/03/2018, one day prior to announcement and a premium of 29.4% over Innogy’s share price of a month before the announcement.