EON Cancels Nuclear Business Spinoff as 2015 Loss Forecast

  • EON adapts breakup to planned German liability legislation
  • 3Q impairments in higher single-digit billions of euros

EON SE is canceling plans to spin off its German nuclear plants as the country moves to prevent utilities from dodging costs for the disposal of radioactive waste. Germany’s largest utility forecast a net loss for 2015 from writedowns prompted by the decision.

It will stick with a strategy to spin off other parts of its conventional power business as well as energy trading, exploration and production into a new company called Uniper next year, the Dusseldorf-based company said in a statement late Wednesday.

EON is amending a November 2014 plan to split the company in two as the government burdens operators with the cost of dismantling reactors in steps to phase out atomic energy by 2022. Its supervisory board unanimously approved the move after German Chancellor Angela Merkel made clear that she intends to pass legislation that will thwart efforts by the country’s four nuclear-power providers to spin off units and avoid the cleanup costs, saying these should be borne “by those who cause them.”

EON ‘Debacle’

“The previously promised new EON, which was meant to be highly regulated and network and customer focused, stands to be little improved on the current business,” said John Musk, an analyst at RBC Europe Ltd. who described Wednesday’s decision as a “debacle” that “is a clear negative to the investment case.” He said he may reconsider his outperform rating on the stock and adjust financial estimates as a result.

EON fell as much as 6.2 percent to 9.07 euros ($10.15), a record low for the company established in 2000. The stock was down 4.6 percent at 12:11 p.m. in Frankfurt, where shares equivalent to almost 140 percent of the three-month daily average changed hands in the first two-and-a-half hours of trading.

EON, which had originally planned for the new company to take the fossil-fuel and atomic plants, is focusing on renewables and energy networks. It expects impairments “in the higher single-digit billion” euros in the third quarter due to persistently low wholesale prices for electricity and other commodities, it said.

That will result in a net loss in the “mid-single digit billion” euros for 2015, EON Chief Executive Officer Johannes Teyssen told reporters on a conference call Thursday. He didn’t rule out a record loss topping last year’s record 3.16 billion-euro decline.

Radical Response

The company’s split represents the most radical response yet to Germany’s switch to wind and solar power, a shift that has undermined power prices and eroded traditional utilities’ profits.

It now plans to manage its three German nuclear plants through a separate unit based in Hanover called PreussenElektra. This will be kept largely independent of the company’s management structure and will have about 2,300 staff.

“This decision safeguards us against risks to the implementation of our corporate strategy,” Teyssen said in a statement. The company isn’t willing to wait for possible policy making decisions, which “would likely be unconstitutional.”

The utility plans to take prompt action as its “transformation cannot await the outcome of years of litigation,” he said, calling for German lawmakers to focus on unresolved issues regarding the country’s nuclear exit.

Teyssen on Aug. 21 vowed in Dusseldorf to “successfully complete this process, whatever the cost.”

The company reiterated its intention to pay a dividend of 50 cents a share for 2015.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE