Multi-billion pound E.ON-RWE asset swap may scupper SSE-Innogy tie-up

Shares of E.ON and RWE were catapulted higher by news of a multi-billion pound asset swap aimed at fending off the entry of European rivals into their main market.

However, the deal might also scupper the expected tie-up between SSE and Innogy's retail arms in the UK.

Under the terms of the £19.57bn transaction agreed on Saturday, Germany's RWE would get all of E.ON's renewable energy assets and take a 17% stake in its rival.

In exchange, E.ON would take control of Innogy, and its retail and netowrk businesses, until then majority-owned by RWE, minus its renewable energies unit.

E.ON would also acquire RWE's own retail and netowrk activities, which would turn it into one of the Continent's larger grid and utility players.

Two years before, RWE had spun-off Innogy as its clean-energy business, and now it would get it back while transforming itself into a pure generation outfit.

EON would also pay €5bn to buy-out Innogy's smaller shareholders, at €40 per share, alongside another €1.5bn from RWE.

According to some observers, the deal's main logic was to stave off competition from Italian and French national champions Enel and Electricite de France, with Innogy reportedly having been in the sights of Enel, Iberdrola and Engie.

It also followed the German government's u-turn on nuclear energy in the wake of the 2011 disaster in Fukushima, Japan which had upended the sector in the euro area's largest economy.

As matters would have it, some analysts believed the asset swap might jeopardise the proposed merger between SSE and npower, due to the latter's ownership by Innogy.

However, according to SSE its November agreement to merge its UK power and gas retail operations with those of npower continued to be "legally binding".

In a statement issued on Monday afternoon, SSE said: "One of the conditions was Innogy's supervisory board approval which was obtained in December 2017 and the agreement does not include provision relating to change of control. SSE therefore does not believe that its agreement with Innogy should be affected by the EON/RWE agreement."

One possibility put forward by analysts was that Innogy might sell its stake in npower.

As of 1533 GMT, shares of SSE were trading 1.75% lower to 1,235p, while those of RWE were 8.74% higher at €19.47, alongside a 13.02% rise for Innogy shares to €38.90.