By Christoph Steitz and Tom Käckenhoff
ESSEN, Germany (Reuters) - German energy groups E. ON and RWE on Tuesday fleshed out their plans to break up RWE's Innogy business, forecasting higher profits and dividends as a result of a more focused structure.
E. ON forecast annual operating profit to rise by an average 3 to 4 percent over the next three years, while RWE flagged a bigger than expected dividend for 2019, driving shares in E. ON to the top of Germany's blue-chip index.
The two companies announced plans to carve up networks, renewables and retail energy firm Innogy, in which RWE holds a 76.8 percent stake, and divide its assets between them in a reshaping of Germany's power sector.
The deal will turn RWE, one of Europe's largest carbon dioxide emitters, into Europe's third largest renewables player after Italy's Enel and Spain's Iberdrola. At the same time it will create a continental network and retail giant under E. ON's roof.
"This is a transaction that only knows winners," RWE Chief Executive Rolf Martin Schmitz told journalists on Tuesday, also citing a 5.2 billion euro ($6.4 billion) bid E. ON will launch for Innogy's minority shareholders in the second quarter.
However, there will be a toll in terms of lost jobs.
The transaction, expected to close late in 2019, will result in as many as 5,000 job cuts as well as the future E.
ON group targets 600-800 million euros in synergies.
"The announced job cuts ... must be cushioned, with no compulsory redundancies," said Andreas Scheidt, a member of labour union Verdi's board. Scheidt is also deputy chairman of E. ON's supervisory board.
Shares in E. ON gained more than 4.2 percent, adding a further 820 million euros in market valuation. RWE and Innogy both traded 0.7 percent lower, having posted bigger gains than E. ON a day earlier.
Germany has shifted to solar and wind power after Japan's Fukushima disaster seven years ago triggered a phase-out of nuclear power, turning the coal and nuclear based business model of the country's utilities on its head.
RWE said on Tuesday that its ordinary dividend was expected to rise to 0.70 euros per share in 2018, up from 0.50 euros in 2017, with a further increase planned in 2019, when analysts polled by Reuters had expected it to remain flat.
Under the proposed deal E. ON will focus on Innogy's gas and power networks, raising its share of profits from regulated assets to about 80 percent from 65 percent, and giving it some 50 million European clients.
RWE carved out and listed Innogy in 2016, hoping to extract more value from its networks and renewables assets, the most promising areas of the crisis-ridden utility sector. It has since tried to find a buyer for its stake.
E. ON, which also said its dividend would rise in 2018 as it released strong results on Monday, will keep some renewables assets in the Innogy deal, notably its 1.3 billion pound ($1.8 billion) Rampion wind park off southern Britain.
($1 = 0.8112 euros)
($1 = 0.7204 pounds)
(Additional reporting by Vera Eckert; Editing by Alexander Smith and Keith Weir)
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