EON SE agreed to acquire Innogy SE from German rival RWE AG, transforming the country’s energy industry as utilities grapple with the accelerating shift to renewables.

In a complex deal involving shares and asset swaps, EON SE will emerge with the retail and network businesses of both companies, while RWE will end up owning the combined renewable-generation businesses as well as a large stake in EON. An announcement came early on Sunday after Bloomberg News reported that the companies were in advanced talks, citing people familiar with the matter.

The deal, which values Innogy at about 22 billion euros ($27.1 billion), continues years of upheaval for competitors RWE and EON started by German Chancellor Angela Merkel’s move toward an economy powered by renewable energy instead of nuclear and fossil fuels. Once among the most stable profit contributors in Germany, the two utility giants were forced to take billions of euros in writedowns and break themselves up after German wholesale power prices tumbled.

“This gives us two powerful companies in the international marketplace,” North Rhine-Westphalia state premier Armin Laschet, a party ally of German Chancellor Angela Merkel, told ARD television. All three companies are based in her state.

The agreement sees EON acquiring all of RWE’s 76.8 percent stake in Innogy, giving RWE 16.7 percent of EON’s equity in return. According to one person familiar with the deal, the transaction gives Innogy an enterprise value of about 43 billion euros once debt is included. Relatively small amounts of cash will change hands: EON will pay about 5 billion euros to buy out Innogy’s minority shareholders, while RWE pays EON 1.5 billion euros.

The deal takes three relatively small businesses and creates one of the largest grid and utility players in Europe and a pure generation company with a strong renewables portfolio, the person said, asking not be identified before management speaks publicly.

Minority Stakes

RWE will also end up with EON’s minority stakes in two nuclear power plants, Innogy’s gas storage business and Innogy’s stake in an Austrian energy supplier. The transaction will be enacted in several steps, subject to regulatory and board approvals.

“It’s as if everything they both said about harnessing the energy shift is no longer valid and they’re guided by other more urgent forces,” Arash Roshan Zamir, a utilities and clean energy analyst at Warburg Research, said on the phone on Sunday. “The only thing that’s clear is that they’ve kept it all German. That will be a relief for the unions, the municipal stakeholders and politicians.”

Energy Shift

The deal nd marks EON’s return to growth via dealmaking. The company, itself the product of two rivals merging more than a decade ago, is in the process of selling its 47 percent stake in conventional power utility Uniper SE to Finland’s Fortum Oyj.

Innogy had attracted interest from other European utilities, including Engie SE, Enel SpA and Iberdrola SA, people familiar with matter said. Macquarie Group Ltd. may acquire smaller businesses including in Eastern Europe from the combined entity, they said.

Macquarie declined to comment.

E.ON is Germany’s biggest investor in renewable energy, with more than 10 billion euros in wind solar and storage, while RWE is the country’s biggest power producer, though with a heavy focus on conventional sources. Innogy has sought to broaden its global footprint, with wind and solar assets that stretch from the U.S. to Australia.

The deal has anti-trust implications across Europe, since RWE, EON and Innogy are have have some markets where they compete. In the U.K., Innogy and E.ON account for two of the Big Six utilities feeding energy to households. In Germany, they’re the two dominant suppliers. In addition to their work in Germany, EON and Innogy both have grid or retail operations overlapping in the Czech Republic, Slovakia and Hungary.

Acid Attack

A deal with E.ON would come as Innogy is without permanent leadership. Chief Executive Officer Peter Terium left the company in December following a profit warning and trouble in the U.K. business. Uwe Tigges, Innogy’s human resources officer and a management board member, has assumed the CEO role on a temporary basis. Chief Financial Officer Bernhard Guenther became the victim of an acid attack last week and was admitted to the hospital with severe injuries.

— With assistance by Ruth David, Brian Parkin, and Ed Hammond