FRANKFURT/DUESSELDORF, Germany E.ON's (EONGn.DE) power grids are part of its core strategy, the German utility said on Thursday, stopping short of denying a magazine report the company was considering at least a partial spin-off of the business.
E.ON has come under pressure from investors and analysts to boost its share price following the spin-off of Uniper (UN01.DE), made up of conventional power generation and energy trading which are seen as less promising assets.
The move, which left E.ON with its more profitable networks, renewable energy and retail operations, has failed to lift a discount on its stock, mainly because a capital increase is widely expected to fund the storage of radioactive waste.
In addition, billions of euros in writedowns are expected to hit E.ON as a result of the gap between Uniper's market value and its higher valuation on E.ON's books.
"The company's equity is close to zero," said Guido Hoymann, head of equity research at Metzler in Frankfurt. "But I don't think they're under water yet."
Hoymann said a partial sale of E.ON's networks would not be an act of desperation, but a way to win over shareholders again. "They've had to put up with a lot."
German utilities have been hammered over the potential costs of decommissioning their nuclear plants but talks are expected to wrap up next week over a deal that could remove the biggest concern investors have regarding the shares.
Since E.ON first announced the Uniper spin-off in November 2014, its shares have nearly halved, underperforming the broader European utility index .SX6P by nearly a third. E.ON shares were down 0.4 percent at 6.53 euros at 1239 GMT.
E.ON said it had received support from nearly all its shareholders for its strategy, in which networks play a key role. "We will implement that (strategy) successfully," a spokeswoman said in emailed comments on Thursday.
She said options to raise capital included the sale of renewable energy assets but gave no details with regard to its plans for the networks business.
The remarks were in response to a WirtschaftsWoche report that said E.ON was considering spinning off and listing at least part of its networks to offset falling grid fees.
People familiar with the matter said while a sale of a small stake in one of its networks was one potential option to raise cash there were no concrete plans for a spin-off of the unit.
"E.ON would rob itself of its equity story," one of the people said.
Another person said a spin-off would come at the cost of a lower profit contribution from the networks unit, as well as running the risk of a possible downgrade of E.ON ratings.
Hedge fund Knight Vinke, an E.ON shareholder which has not disclosed its stake as it is below a 3 percent disclosure threshold, has been the most vocal advocate for a spin-off of the utility's regulated network business, similar to the one done by smaller rival RWE (RWEG.DE).
The fund proposed in August to buy E.ON's 47 percent stake in Uniper for 8 euros ($8.96) a share and inject 600 million euros of equity into E.ON and 300 million into Uniper, according to a letter from founder and CEO Eric Knight dated Oct. 11.
The plan was rejected by E.ON, according to Knight's letter, "mainly, we believe, due to adverse tax consequences that could not be mitigated".
Uniper shares were trading at 11.13 euros on Thursday.
($1 = 0.8928 euros)
(Reporting by Christoph Steitz, Tom Kaeckenhoff, Maiya Keidan and Arno Schuetze; editing by Maria Sheahan and David Clarke)