Germany’s E.ON to split into two companies

German utility firm E.ON has announced plans to split its business into two entities as part of its strategy to focus on renewables, distribution networks, and customer solutions. The spun-off new firm will be publicly listed and focus on conventional power generation, global energy trading, exploration and production.

This move comes in response to the crisis that has grappled the European energy sector.

Germany’s power sector has been facing significant challenges as a result of weak energy demand and low whole sales prices for a prolonged period, reports Reuters.

E.ON SE CEO Johannes Teyssen 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. 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."

The company said that it would prepare the listing of the new entity by 2015 and the spin-off would take place following its annual general meeting in 2016.

The spin-off is not expected to lead to any job cuts. About 40, 000 employees will stay with the parent group, while about 20,000 employees will move to the new company.

As part of the first step in the process, E.ON plans to transfer a majority of the new company’s capital stock to its shareholders.

With this, the company could avoid sale of new shares on the open market as generally is the case with an IPO.

Investors in E.ON will secure shares in the new company as well as holding shares in the parent company.

Later, E.ON plans to sell its minority stake in the new company to boost its finances and cut down its net debt of €31bn.