RWE can cut Innogy stake to 51 percent as M&A report drives shares

By Christoph Steitz and Tom Käckenhoff

ESSEN, Germany (Reuters) - German utility RWE on Tuesday said it could reduce its stake in networks and renewables unit Innogy to 51 percent, but declined to respond directly to a report that France's Engie was considering a bid for the company.

RWE would not comment on what it called "market rumours" following a report by Bloomberg that Engie was talking to advisers but had not yet decided whether to proceed with a bid for Innogy, in which RWE holds a 76.8 percent stake. (http://bloom.bg/2ngzRkA)

"Furthermore, RWE clarifies that in 2015 the Supervisory Board of RWE AG decided in connection with the IPO of Innogy that RWE can in principle sell Innogy shares and thereby reduce its stake to 51 percent," the group said on Tuesday.

RWE on Monday said it had decided in 2015 to keep a majority stake in Innogy and that the decision remained valid.

Innogy and Engie declined to comment.

Shares in RWE and Innogy were up 4.8 and 3.2 percent, respectively, in pre-market trade, with traders pointing to the possibility of consolidation in the sector should a bid materialise.

"There should also be a positive read across for E.ON, who could be an equally attractive (and cheaper) acquisition target for Engie, if RWE were to reject its offer," Bernstein analyst Deepa Venkateswaran said in a note.

Innogy, listed by RWE last year in Germany's biggest IPO since 2000, is an important source of income for RWE. It proposed a payout of 1.60 euros ($1.70) per share on Monday, at the upper end of its range.

RWE meanwhile last month cancelled its dividend for ordinary shares for the second year in a row, and Chief Executive Rolf Martin Schmitz said on Tuesday it would not be a good idea to pay out dividends by going into debt or selling Innogy shares.

RWE on Tuesday also reported full-year results and said it expects core earnings (adjusted EBITDA) of 5.4-5.7 billion euros this year, compared with 5.4 billion in 2016 and higher than the 5.2 billion average analyst forecast in a Reuters poll.

($1 = 0.9384 euros)

(Editing by Maria Sheahan and Louise Heavens)