The main control center at the EON Ratcliffe-on-Soar coal fired power station in Ratcliffe-on-Soar, U.K.
The plan is the most radical response yet to Germany’s unprecedented switch to wind and solar power. The so-called energy shift has forced EON and its peers to close nuclear reactors and undermined power prices, decimating the profitability of traditional utilities.
EON also announced it will write down the value of assets by 4.5 billion euros ($5.6 billion), leading to a substantial full-year loss. Even so, the shares jumped the most in more than two years on the plan, which Chief Executive Officer Johannes Teyssen will discuss at a press conference this morning.
EON’s move is a “spin-off of its ‘Bad Bank’ assets” that “could set a
blue print for other utilities” including German rival RWE AG (RWE), analysts at Sanford C. Bernstein & Co. led by Deepa Venkateswaran said in a note today. “It will create more strategic clarity for EON’s shareholders and will help unlock more value for the stable downstream businesses.”
EON plans to create a new publicly listed company in 2016 specializing in power generation, global energy trading, exploration and production. That will leave the company to concentrate on renewable generation, distribution and marketing to households and consumers.
Johannes Teyssen, Chief Executive Officer of EON SE.
The shares jumped as much as 6.3 percent to 15.15 euros a share in Frankfurt, the most since March 2012, and traded at 14.93 at 9:10 a.m. local time.
Respond Dramatically
“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,” the company said. “EON’s existing broad business model can no longer properly address these new challenges.”The 4.5 billion-euro impairment charge, booked on its southern Europe and generation assets, will result in the company reporting a “substantial” loss this year, though its full-year underlying net income target still holds, the company said in a statement yesterday.
Germany’s shift toward renewables from nuclear energy has led to a surge in wind and solar generation, cutting power tariffs already weakened by slow European economic growth.
Remaining Stake
The new company, in which EON will continue to hold a minority stake, will employ about 20,000 people, or about one-third of the utility’s current workforce. EON will transfer a majority of capital stock in the new company to shareholders.It plans over time to sell down its remaining stake, adding to proceeds gained from the sale of its businesses in Spain and Portugal to Macquarie Group Ltd. for an enterprise value of 2.5 billion euros, it said.
EON is also exploring the disposal of assets in Italy and has put its exploration and production operations in the North Sea under strategic review.
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