German power and gas giant E.ON has announced it will now focus on renewables, distribution networks and customer solutions, and spin off its conventional generation, global energy trading, and exploration and production businesses into a new, independent company (“New Company”), a majority of which will be spun off to E.ON SE shareholders.
“I’m pleased that the Supervisory Board unanimously approved the Board of Management’s proposed new strategy, which will give our employees and our investors clear prospects in two strong companies that are viable for the future,” E.ON Supervisory Board Chairman Werner Wenning 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,” said E.ON SE CEO Johannes Teyssen. “E.ON’s existing broad business model can no longer properly address these new challenges. Therefore, we want to set up our business significantly different. E.ON will tap the growth potential created by the transformation of the energy world. Alongside it we’re going to create a solid, independent company that will safeguard security of supply for the transformation. These two missions are so fundamentally different that two separate, distinctly focused companies offer the best prospects for the future.”
In 2015 E.ON says it will take necessary preparatory steps for the New Company’s public listing. Both E.ON and the New Company will be solidly financed, be positioned to secure jobs, and have prospects for creating new jobs in the future.
“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,” Teyssen said.
E.ON: customer-oriented, sustainable, innovative
E.ON SE will focus on the new energy world and customer businesses. It will have three core businesses: renewables, distribution networks, and customer solutions. About 40,000 employees will be assigned to the distinctly focused company, which, by concentrating on customers’ future needs, will ensure that employees have good development opportunities in a multinational energy corporation.
In its new setup E.ON will provide innovative solutions to meet the needs of its roughly 33 million customers and take new approaches to further developing each of its three core businesses by increasing its investments for the next year by about €0.5 billion compared to the previously planned 2015 capex of €4.3 billion. E.ON says it will focus on expanding its wind business in Europe and other selected target markets; strengthening its solar business; and upgrading its energy distribution networks in its European markets and in Turkey. E.ON intends to position itself as a pioneer in innovative, customer-oriented solutions by identifying trends and technical advances early and drawing on them to develop solutions for customers.
“These efforts will be guided by one objective: We want to be best in class in customer satisfaction in all our target markets,” Teyssen said.
New impetus for the conventional energy world
“The transformation of the energy system will continue to require reliable backup capacity well into the future as well as access to global markets for energy products. With a portfolio consisting of conventional power generation, global energy trading, and exploration and production, the New Company will focus precisely on meeting these needs,” Teyssen said.
He added that the clear focus of the New Company — which will be headquartered in Germany’s Rhine-Ruhr region and support roughly 20,000 employees — will put it in an excellent position to lead the necessary consolidation of power generation in Europe and to offer attractive services for the system needs of the future.
Over the past decade E.ON has established leading positions in conventional power generation in Europe and Russia. In recent years E.ON has systematically optimized its generation fleet and production costs, laying the foundation for sustainable profitability. A strong natural gas portfolio — which encompasses exploration and production, gas transport pipelines to Europe, long-term gas procurement contracts, and substantial storage capacity in Germany — makes E.ON one of the leading players in the natural gas business of the future. These power and gas activities will continue to have E.ON’s well-established trading unit as their interface with global commodity markets and European trading platforms.
Partner for regulators and policymakers
E.ON’s strategic transformation represents an important and attractive opportunity for regulators and policymakers as well. E.ON 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 E.ON to accelerate the deployment of new technologies and at the same time make a significant contribution to supply security. Both parts of today’s E.ON will be developed in ways that ensure their future viability.
Ensuring stability and value
The first step of the spinoff will involve E.ON transferring a majority of New Company’s capital stock to its shareholders, with the result that New Company will be deconsolidated. E.ON intends — over the medium term and in a way that puts minimum pressure on the stock price — to sell the shares of its remaining minority. This will enhance E.ON’s financial flexibility for future growth investments.
E.ON’s financial flexibility is further enhanced by the divestment of its entire businesses in Spain and Portugal, which it has agreed to sell to Macquarie, an Australian investment firm, for an enterprise value of €2.5 billion. The new owner will operate and further develop E.ON’s conventional and renewable operations in both countries and be the future partner for its distribution and retail customers there. In addition, E.ON is exploring the disposal of its activities in Italy and will conduct a strategic review of its exploration and production business in the North Sea prior to the spinoff. Existing provisions for the dismantling and disposal of nuclear and conventional assets will be fully covered in the New Company’s balance sheet.
E.ON and New Company’s respective business portfolios will differ considerably in terms of growth, risk, innovation tempo, and cash flow profile. Each company will face different strategic challenges, have different requirements for capital, and will appeal to different investor groups.
E.ON expects to carry out the spinoff after approval by the E.ON shareholders meeting in 2016.
E.ON isn’t the only energy giant strategizing for the future: Last month, NRG Energy, the second-largest conventional power generation company in the U.S., announced ambitious sustainability goals as part of its continued corporate growth strategy, including reduce its CO2 emissions 50% by 2030 and 90% by 2050 below a 2014 baseline; leveraging and growing its core generation capabilities in a sustainable, lower-carbon manner; and substantially growing business and shareholder value during its transformation into the nation’s leading provider of reliable, clean, sustainable energy.
These moves by energy providers are further evidence of the momentum generated as more businesses — including most recently H&M, KPN, Mars, Nestlé, Philips and others behind the RE100 campaign — continue to drive demand for renewables.