Germany’s largest utility firm, E.ON on Sunday announced it will split into two companies, with one focused on renewables and the new one on conventional energy in an effort to deal with the crisis that has grappled the European energy sector.
The German utility said it would focus on renewables, regulated distribution networks and customer solutions, while the new, publicly listed company would comprise E.ON’s conventional power-generation, global energy trading, exploration and production units.
Utilities in Europe have been in turmoil, hit hard by a surge in renewable energy generation and weak demand. The German and European Union governments have heavily subsidized the renewable energy generation in the hope of controlling carbon-dioxide emissions. But the resulting oversupply of electricity has lowered wholesale prices, rendering power generation from conventional plants unprofitable.
With the spin-off taking place after the 2016 annual general meeting, E.ON said it would start preparing in 2015 for the listing of the new company created by its breakup.
While the split will not result in job cuts, E.ON said that about 40,000 employees would remain with the parent group and the remaining 20,000 would join the new company.
E.ON has not provided an earnings breakup for the two future companies. While renewables and regulated businesses alone accounted for 54%, E.ON’s generation, upstream and global commodities units, which includes trading, accounted for about 35% of its €9.32bn (£7.4bn) in earnings before interest, tax, depreciation and amortisation in 2013.
In the beginning, the firm said it would transfer most 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 be given shares in the new company along with holdings in the parent firm. 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 prop up its finances.
With E.ON deciding to spin off most of its power generation, the firm gets rid of sector that has been hit by Germany’s decision to promote renewables at the expense of gas, coal and nuclear power plants.
The company also said it expected to incur impairment charges of 4.5 billion euros ($5.6 billion) in the fourth quarter of 2014, citing its loss-making power plants as well as assets in southern Europe .
E.ON said its supervisory board had agreed to a proposal to pay a dividend of €0.50 per share for 2014 and 2015, down from €0.60 paid for 2013.
The company has agreed to sell off 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 carry out a strategic survey of its exploration and production business in the North Sea.