E.ON share price up, to split as it focuses on renewables

E.ON SE, Germanys biggest utility by market value, said it would split into two companies, spinning off its fossil fuel and nuclear generation power plants into a new company while turning its attention to renewable energy sources.

The new publicly listed company would consist of E.ONs conventional generation, global energy trading, and exploration and production divisions, while the rest of the German utility would focus on renewables, distribution networks, and customer solutions.

The break would enable each company to represent a different portfolio and exposure to risk, answering to its own shareholders, E.ON said. The change is being made due to the inability of E.ONs current business model to address the “dramatically altered global energy markets,” said CEO Johannes Teyssen, adding that the spin-off is a “bold new beginning”.

Utilities performance across Europe have been hurt by an increased interest in renewable energy generation, which many of the countries within the European Union, including Germany, have been subsidizing in order to reduce carbon-dioxide emissions. However, the governments interventions have led to oversupply in electricity, which caused a decline in wholesale prices and made conventional power generation plants unprofitable.

After the spin-off, the company would have low volatility and could profit from the growth potential created by the transformation of the energy world. Meanwhile, the new company would benefit from E.ONs natural-gas business in Europe and Russia and would safeguard the security of energy supply.

“These two missions are so fundamentally different that two separate, distinctly focused companies offer the best prospects for the future,” Mr. Teyssen said.

E.ON said it would transfer the majority of the new company’s capital stock to its shareholders, while the rest of the shares will be sold in the near future. The new company, which will be headquartered in the Rhine-Ruhr region of Germany, will have approximately 20 000 employees and provide better platform for securing jobs, E.ON said.

“We firmly believe that creating two independent companies, each with a distinct profile and mission, is the best way to secure our employees’ jobs. Our new strategy therefore isn’t a job-cutting program,” said Mr. Teyssen.

The plan still needs to be approved by the companys shareholders and if it passes the spin-off will be carried out in 2016.

E.ON SE lost 0.28% on Friday and closed at €14.26 in Frankfurt. The stock gained 4.14% to trade at €14.85 at 11:47 GMT, marking a one-year increase of 4.8%. The company is valued at €28.52 billion. According to the Financial Times, the 28 analysts offering 12-month price targets for E.ON SE have a median target of €14.20, with a high estimate of €19.00 and a low estimate of €12.00. The median estimate represents a 0.39% decrease from the last close price of €14.26.