E.ON, Germany's top utility, has said it will spin off its power plant business to focus on renewable energy and power grids.
The drastic move has been prompted by a sliding market value, which has dropped by nearly three-quarters over the past six years to about €29bn (£23bn), down from an all-time high of more than €100bn in 2008.
The power-generation sector has been hit hard by Germany's decision to encourage renewables such as wind and solar power. Tariffs discourage the use of gas, coal and nuclear power plants as well as weaken energy demand in a sluggish economy and lower wholesale power prices.
E.ON said the remaining business would focus on renewables, distribution networks and tailor-made energy-efficiency services to embrace changes in energy markets, technology and customer demand.
"We have seen the emergence of a new energy world," chief executive Johannes Teyssen said at a press conference today. "E.ON's existing broad business model can no longer properly address these new challenges."
E.ON said it would prepare next year for the listing of the new company created by its breakup, with the spin-off taking place in the second half of 2016.
The company has pledged that there will be no job-cuts, saying that about 40,000 of its employees would remain with the parent group while the remaining 20,000 would join the new company.
"We see this as an extremely brave but progressive move by E.ON," RBC Capital Markets analyst John Musk wrote in a note to clients, keeping an "outperform" rating on the stock. "The question now becomes if other integrated utilities will follow suit."
In a study last month, Credit Suisse analysts said GDF Suez – whose business is similar to E.ON – suffered a "conglomerate discount" of 5 to 40 per cent and suggested GDF could restructure and list its French networks separately.
"From an investor perspective, the spin-off would be desirable as it would give E.ON two clear-cut business models that are easier to assess than the conglomerate," said Thomas Deser, senior fund manager at Union Investment, E.ON's seventh-largest shareholder.
It said the existing provisions for the dismantling and disposal of nuclear and conventional assets would be fully covered in the new company's balance sheet.
It also said it had agreed to sell its businesses in Spain and Portugal to Australian energy infrastructure investor Macquarie for €2.5bn, adding that it was considering selling its business in Italy and would conduct a strategic review of its North Sea business.
When the new company is spun-off, E.ON said it would transfer a majority of the new company's capital stock to its shareholders, avoiding the sale of new shares on the open market as is the case during an initial public offering (IPO).
Instead, investors in E.ON will receive shares in the new company in addition to holding shares in the parent company. E.ON, which has €31bn in net debt, said it would dispose of its minority stake in the new company over the medium-term to bolster its finances.
E.ON also said it would post a substantial net loss for 2014 due to additional charges of about €4.5bn in the fourth quarter, citing its assets in southern Europe as well as loss-making power plants.
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