EUR 850.00 For Business Accounts Only

Morningstar | Uncertain options for Innogy's last minority shareholders.

Innogy was created in 2016 by the spin-off of RWE's distribution, renewables, and supply activities. RWE retained 76.8% of Innogy's capital after the spin-off.Under an agreement announced in March 2018, E.On will acquire all of RWE's stake in Innogy. In return, RWE will receive a participation of 16.7% in E.On and most of E.On's renewables business, while RWE will keep Innogy's renewables and gas storage business. E.On will carry out a 20% capital increase and get a EUR 1.5 billion cash payment from RWE. Last but not least, E.On intends to buy out Innogy's 23% minorities at EUR 40 per share, consisting of an offer price of EUR 36.76 per share plus Innogy's dividend for 2017 and 2018. The EUR 36.76 per share offer implies 19% upside to our EUR 31 fair value estimate for Innogy before the deal announcement. Accordingly, we recommended that Innogy's shareholders accept E.On's offer.At the end of its extended offer period in late July 2018, E.On had acquired 9.4% of Innogy stock out of a total minorities share of 23.2%. The remaining 13.8% of minorities that did not tender their shares to E.On could be compensated through shares in the merged Newco, a guaranteed dividend, or a compensation payment. Altogether, Innogy's share price is driven by risk arbitrage and not by fundamentals.Before the deal, we had a cautious view on Innogy’s fundamentals, driven by the upcoming returns reduction for regulated networks and margin pressure in no-moat retail activities, owing to fierce competition. Our view is more positive on the renewables division. Accordingly, as we wrote in March after the deal announcement, we view the deal’s rationale as stronger for RWE than for E.On, as the former will keep Innogy’s renewables business while the latter will get regulated and retail businesses.