Electric Shock E.ON Needs New Energy

Splitting up the company alone isn't enough. The energy group has to change its way of thinking, writes Dieter Fockenbrock.
Power cut. E.ON is pulling the plug on fossil fuels.

At least investors are happy with E.ON. Or rather, they are happy with what will remain of what was once the largest energy provider in Germany.

The company is splitting into an old E.ON, which will consist of power plants and large parts of its foreign business, and a new E.ON encompassing renewable energy production and the distribution networks. The E.ON share price soared on Monday as the company announced these plans. The boost was definitely needed: the firms's market value had fallen by more than half in the past four years. E.ON, once one of the most valuable companies in Germany, is hardly more than a shadow of its former self. 

But investors should now also be wondering what exactly went down at E.ON's Düsseldorf headquarters. The company is establishing a bad bank of sorts, to which it is transferring all areas considered to have poor future potential, especially power plants. Their profitability has plunged, and it doesn't appear that the tide will turn in their favor again. The company's problems are collateral damage of Berlin's phase-out of nuclear energy and shift toward renewable energy known as the Energiewende.

To begin with, it doesn't even read like a good corporate story. The company is apparently so much on the defensive that the planned split is more like a last battle than a breakup.

It's worth taking a look at the people involved. E.ON chief executive Johannes Teyssen certainly didn't develop, nor could he have approved, this radical concept on his own. Werner Wenning, chairman of the supervisory board, is a powerful force operating in the background. He is also the supervisory board chairman of Bayer, a company that could serve as a role model for E.ON.

Wenning is currently plotting a path at Bayer that could shoot the chemical and pharmaceutical company, based near Cologne, into a higher league. Under Mr. Wenning's direction, the plastics division is being spun off. Following Lanxess, this is the second unwanted division Bayer is getting rid of. It hopes the divestments will leave the company trimmed-down and more weatherproof. The strategy seems to be working. Bayer has been the most valuable publicly-traded company in Germany for months. In other words, Mr. Wenning's strategy seems to have something going for it.

Whether a company remains relevant after splitting depends on what it does next.

Although Bayer isn't the first company to split up, it carried out the move successfully. Siemens also used the approach to make its name more recognisable: Infineon, Epcos and Osram all left their parent companies in the past fifteen years. It is up for debate whether Siemens understands how to operate as a smaller, streamlined entity. At any rate, it hasn't managed to become a shooting star like Bayer.

Whether a company remains relevant after splitting depends on what it does next. 

The establishment of an industrial bad bank certainly doesn’t mean that the rest of the company will be an automatic success. Why should E.ON's wind and solar energy divisions be more successful in the future, simply because they are the core of the new company?

Mr. Teyssen and Mr. Wenning need to generate a spirit of optimism over the shrunken company. The notion of thinking big, for example, is important for large companies, especially energy providers, where everything is denominated in megawatts and gigawatts. But renewable energy is more compartmentalized – into generation, supply and control. E.ON and other energy companies have to learn this first.

By separating itself from its massive, concrete-gray power plants with their smoking chimneys, E.ON is creating at least two good conditions for a successful fresh start in the energy business. First, it is clearly defining which business is worth how much, and where investment is worthwhile. Second, the split is a signal to employees of the new E.ON that they are now freed of old burdens and can start thinking in new ways.

But more is needed. Energy companies misunderstood Industry 4.0, the German government's high-tech strategy. It isn't merely a question of digitizing electric meters and controlling heating systems with smartphones. What matters even more is quick, customer-oriented thinking and acting. But E.ON won’t take advantage of its opportunity as long as it and similar companies only see themselves as "providers." In that case, E.ON's division would not be seen as a solution but as capitulation.


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