Interview with the Executive Board

The importance of the transaction for RWE

New perspectives for RWE!

On 13 March 2018, RWE presented a far-reaching transaction with E.ON at a joint press conference. RWE AG Executive Board members Rolf Martin Schmitz and Markus Krebber explain what the deal means for RWE and what the future looks like.

Mr. Schmitz, Mr. Krebber, you both look a little tired. I suppose you didn’t get much sleep in the last couple of weeks?

Rolf Martin Schmitz (laughs): Yes, you can say that again! It goes without saying that preparing for a transaction of this magnitude involves a lot of work. By the time everything had been negotiated to the satisfaction of both sides and all the legal and financial aspects had been signed off on, we sure had done quite a lot!

Markus Krebber: I definitely second that. It was hard work for all colleagues involved. But our efforts were really worthwhile, and I’m proud of this forward-looking transaction and of the amazing team at RWE that made it happen!

What exactly does the agreement with E.ON contain?

Schmitz: The agreement covers several points and is designed to strengthen both companies. We agreed that E.ON will purchase the 76.8 percent stake in innogy currently held by RWE. In exchange, E.ON and innogy’s renewable electricity generation will be integrated into the RWE Group. RWE will also get the gas storage business run by innogy so far; the minority stake in the Austrian utility Kelag as well as the minority stakes in the Lingen/Emsland and Gundremmingen nuclear power stations currently held by E.ON. RWE will receive a 16.7 percent shareholding in E.ON in addition. The operational results of the renewables business will be assigned to RWE retroactively since 1 January 2018. And, last, but not least, RWE will pay E.ON 1.5 billion euros.

That sounds complicated. What are the advantages for RWE?

Schmitz: I can put that in a one-liner: We are transforming RWE into a leading European power utility for good! We’ve always said that conventional and renewable generation are two sides of the same coin. Security of supply is and will stay a core part of our business and will be complemented by renewable generation. Now we have an excellent setup on both sides in one fell swoop. And our trading platform is the perfect link between the two. Only a handful of companies in Europe can offer this benefit.

Krebber: We will strengthen RWE both strategically as well as financially. The transaction will enable us to reduce our leverage factor and all but double our results from the operating business. The financial investments in E.ON and Kelag will give us additional financial flexibility. Furthermore, we will receive the innogy dividends in 2018 and 2019 totalling 1.4 billion euros. Altogether, this will provide for a robust foundation, enabling us to invest in the expansion of our operating activities – be it renewables or conventional generation.

How exactly will this process be implemented?

Krebber: Of course, the transactions have to be reviewed by the relevant authorities. But we’re confident that we‘ll get the green light. Concurrently, E.ON will make a voluntary public tender offer to the other innogy shareholders. The next step will involve transferring our stake in innogy to E.ON by way of a capital increase in kind. In return, we’ll receive 440 million E.ON shares, the minority stakes in the Gundremmingen and Emsland nuclear power stations, and pay a consideration of 1.5 billion euros in cash. We expect the takeover offer and the capital increase to be completed in the second quarter of 2019. After the transfer of the shareholding in innogy, E.ON will initiate the company’s legal integration. As soon thereafter, the renewables operations of E.ON and innogy, the gas storage business, and innogy’s stake in Kelag shall be transferred to us. As things currently stand, we anticipate that the entire deal can be concluded by the end of 2019.

What will RWE‘s setup be after that?

Schmitz: RWE will be based on healthy pillars: conventional generation from lignite and nuclear on the one hand and from European Power at RWE Generation on the other. Those will be complemented by renewable generation from E.ON and innogy as well as energy trading via Supply & Trading. The financial investments in E.ON, Kelag and Amprion top it off. This whole package makes us strong for the future. We will be the third biggest renewables player in Europe and number two with regards to offshore wind. In the renewable energies market, size does matter.

Krebber: Following full integration – roughly in 2020 – 90 percent of our earnings will come from operating activities, with 10 percent coming from our financial investments. More than half of our earnings will be achieved by the renewable energy business. About one-third will be contributed by conventional electricity generation and the trading business.

Will the integration result in redundancies at RWE?

Schmitz: No, not with regards to the whole RWE group. We will acquire the renewable energy operations of both innogy and E.ON along with the associated workforces, which together make for a headcount of more than 2,500. These employees are doing excellent work and bring outstanding expertise to the table. If there is duplication, we will find solutions together on a case-bycase basis with the co-determination bodies.

Krebber: However, on the E.ON side synergies are more likely as well as job losses. In the energy business we have a lot of experience with such adjustments and have been able to solve this fair and in close cooperation with the employee representatives in the past. E.ON has already assured this.

Nevertheless, this will bring numerous changes to our colleagues, right?

Schmitz: Yes, certainly. But this doesn’t really worry me. We at RWE have an open culture of appreciation and support such structural changes both transparently and fairly. I’m looking forward to our cooperation with the new colleagues joining us from E.ON and innogy. We are a good match as we all focus on joint power production. E.ON’s Board of Management has also clearly stated that the expertise of the colleagues at innogy benefits E.ON enormously.

Krebber: We’re also convinced that this is the right deal, because, once they have been strengthened, both RWE and E.ON will offer their colleagues prospects for an even brighter future. We will be a powerful, international company with growth prospects and career chances in a large number of areas.

Schmitz: And if I may add: We at RWE now look back at 120 years of corporate history. With this new setup, we are well prepared to have a lot more years ahead of us. Everyone has to contribute his and her share. There is still some time to come until the transaction will be fully closed. Until then, nothing changes and we need to concentrate on today’s tasks – this also remains an exciting challenge.