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Simpler Is Better

12 March 2018 by lberuti

Following the Fukushima disaster in 2011, the German government decided to engage on a path towards renewable energies and away from nuclear electricity. That was one of the main reasons Innogy SE was spun off from RWE in 2016, so that it can operate as a company building and managing plants to generate power and extract energy from renewable sources, as well as retailing electricity and gas. At the time RWE kept roughly 75% of Innogy stocks, which are now part of a complex asset deal with E.ON SE which is launching a voluntary public takeover offer to Innogy’s shareholders at €40. If the deal gets regulatory approval and goes through, E.ON will become a power utility with a strong focus on regulated grid, and RWE will focus on power generation with a fully diversified generation portfolio. Even though it is not clear at the moment what will exactly happen to Innogy’s outstanding debt and thus what will happen to Innogy’s CDS contract, investors greeted the news with a tightening of both Innogy’s (-5bps at 46bps) and E.ON’s (-2bps at 42bps) risk premia. In any case, the breakup of Innogy with the allocation of different utility assets to E.ON and RWE will simplify the two utilities corporate structures, which is always a positive.