German power firm Innogy boosted by latest utility shake-up

The German share price index DAX board is seen at the stock exchange in Frankfurt Germany on Monday

Innogy is majority owned by RWE, which announced this weekend that it planned to sell its stake to fellow German utility Eon as part of a multibillion-dollar asset swap.

Eon will receive RWE's 76.8% stake in Innogy.

"It was a competitive process", one of the sources said, adding that RWE had made a decision to strike the deal with E.ON after considering proposals from peers.

The German energy giants confirmed an agreement has been reached, subject to board approval, after reports over the weekend revealed a complex cash, shares, and assets deal was under negotiation.

Background to the deal is the ongoing transformation of utilities especially in Germany, which forced RWE and E.ON to spin-off their conventional assets.

The deal will transform E.On into Europe's largest electricity retailer and grid operator, while RWE will become Europe's second-largest producer of renewable energy.

Business daily Handelsblatt said that "for decades E.ON and RWE were bitter rivals".

RWE and E.ON are making these massive reorganizations faced with the rise of wind and solar power in Germany and across Europe, which has undercut the markets and profits for fossil fuels and nuclear power plants.

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.

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.

Morgan Stanley analysts said the proposed deal would allow E.ON to expand its networks and retail businesses, with potential for "material" cost cuts, while RWE would gain a long-term renewables strategy and a stable dividend from E.ON.

Today saw the publication of innogy's full-year results for 2017, reporting a 9% increase in net income to more than €1.2 billion.

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