German utility E.ON AG (EONGY.PK) said Sunday that it plans to split into two companies in order to focus on renewables, distribution networks, and customer solutions. The company will spin off its conventional generation, global energy trading as well as exploration and production businesses in a new, independent company.
Johannes Teyssen, CEO of E.ON said, "We are convinced that it's necessary to respond to dramatically altered global energy markets, technical innovation, and more diverse customer expectations with a bold new beginning. E.ON's existing broad business model can no longer properly address these new challenges."
E.ON said that it will take the required steps for the new company's public listing in 2015 and expects to carry out the spin-off after approval by its stockholders at their annual meeting in 2016. The company added that the spin-off will not be accompanied by a job-cutting program both companies will be publicly listed.
E.ON has been reporting weak financial results in recent quarters, hurt by the continued difficult business and regulatory environment in Germany's power sector.
E.ON noted that it is clearly separating power and gas production and trading from its end-customer businesses, thereby making both even more transparent for regulators. The new setup will enable the company to accelerate the deployment of new technologies and also make a significant contribution to supply security.
In the first step of the spin-off, E.ON will transfer a majority of the new company's capital stock to its shareholders, resulting in the deconsolidation of the new company. Over the medium term, E.ON intends to sell the shares of its remaining minority. The new company will have its headquarters in Germany's Rhine-Ruhr region.
Following the spin-off, E.ON will have three core businesses - renewables, distribution networks, and customer solutions. It will have about 40,000 employees.
E.ON will increase its investments for the next year by about 0.5 billion euros from the previously planned 2015 capex of 4.3 billion euros. The company will focus on expanding its wind business in Europe and in other selected target markets as well as strengthen its solar business. It will also upgrade its energy distribution networks in its European markets and Turkey.
In a separate statement, E.ON said it has also greed to sell its entire businesses in Spain and Portugal to Australian investment company Macquarie for an enterprise value of 2.5 billion euros. The transaction is expected to close in the first quarter of 2015.
In addition, Wren House Infrastructure, the global direct infrastructure investment vehicle of the Kuwait Investment Authority, will then become a minority investor in E.ON's Iberian businesses alongside the Macquarie Fund.
E.ON added that it is exploring the sale of its businesses in Italy and will conduct a strategic review of its exploration and production business in the North Sea.
As part of the process of preparing the annual financial statements and the new medium-term plan, E.ON expects to record additional impairment charges of about 4.5 billion euros in 2014. The company has already recorded roughly 700 million euros in impairment charges in the first three quarters.
The additional impairment charges primarily relate to the company's operations in Southern Europe and on generation assets. Although not cash-effective, the impairment charges will result in E.ON reporting substantial negative net income in 2014.
However, E.ON reaffirmed its forecast for full-year 2014 EBITDA of between 8.0 billion and 8.6 billion euros, and underlying net income between 1.5 billion and 1.9 billion euros.
In a deviation from the current dividend policy, E.ON's supervisory board agreed to the board of management's proposal that the company should pay a fixed dividend of 0.50 euros per share for both the 2014 and 2015 financial years.
On Frankfurt's Xetra, E.ON closed Friday's trading at 14.26 euros, down 0.04 euros or 0.28 percent on a volume of 7.76 million shares.
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