March 12, 2018 / 2:40 PM / in 8 months

Little risk of rivals scuppering RWE-E.ON asset swap -sources

FRANKFURT/ESSEN, March 12 (Reuters) - Plans to carve up Innogy between parent RWE and fellow utility E.ON are unlikely to be disrupted by rival bidders due to the complexity of the planned transaction, people close to the matter said.

RWE, which owns 76.8 percent of Innogy, had also already explored alternative combinations but without reaching agreement, further reducing the chances of the deal now being challenged.

The transaction announced on Sunday will sharpen the corporate focus of RWE, which will become one of Europe’s largest renewable players, and create one of the continent’s top grids and energy retail players under the umbrella of E.ON.

“The chance of a rival bidder coming in is at best 5 percent,” one of the people said, adding that it would be hard for any potential interloper to offer an attractive mix of assets to both RWE and E.ON.

RWE had been in talks with European peers including Engie and Enel over the last year on a potential transaction and was even close to reaching a deal with Iberdrola in late 2017, the sources said.

“It was a competitive process,” one of the sources said, adding that RWE had decided to strike the deal with E.ON after considering proposals from peers. One source said Australia’s Macquarie had also been in the race.

While asset swaps had been discussed with other European companies, too, RWE never felt comfortable with taking on large exposure to southern Europe, the people said, citing ill-fated forays into the region by E.ON during the last decade.

A German deal was also seen as having better chances to receive political backing. Chancellor Angela Merkel welcomed the deal and said she had faith in Germany’s utilities to find the best way to adapt to the country’s energy shift dubbed Energiewende.

Under Merkel, Germany decided to phase out nuclear power by 2022 as a direct consequence of the disaster at the Fukushima plant in Japan, dealing a major blow to E.ON and RWE and forcing a far-reaching strategy rethink.

While the two companies were in touch with each other over the last year, concrete negotiations about Innogy only picked up this year, the sources said.

Former Innogy chief executive Peter Terium left the company in late 2017, following a profit warning, but people close to the matter said that the real reason for his departure was his opposition to the asset swap.

Despite being an internal German deal, the asset swap of RWE and E.ON could accelerate the consolidation of the energy sector in Europe, according to a person familiar with the industry.

“Inevitably, there are going to be movements. The CEOs of the energy companies could get nervous with this deal,” the person said, adding that the deal would also potentially open up opportunities to snap up assets that RWE and E.ON have to sell to get regulatory clearance for their deal.

Additional reporting by Dasha Afanasieva and Clara Denina in London, Stephen Jewkes in Milan and Andres Gonzalez in Madrid Editing by Keith Weir

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