E.ON Will Cut Jobs, Bundle Units in Run-Up to Possible Sale

By Nicholas Comfort

Aug. 27 (Bloomberg) -- E.ON AG's power generation unit will cut jobs, combine German regional divisions to become more competitive, and separate the sales and grid operations in the run-up to its expected sale.

E.ON Energie AG will begin to bundle six of its seven state and regional units from Sept. 1, the Munich-based company said today in a statement on its Web site. ``Socially acceptable'' job cuts will take place over ``several years,'' according to the statement.

Germany's largest utility is trying to reduce operating costs to retain customers by curbing higher retail prices for electricity and gas. The overhaul will also offset the lower fees E.ON charges for use of its power grid, which are capped by the regulator, and prepare for a possible sale of the infrastructure.

``Clearly, it's to save money,'' said Ulrich Huwald, an analyst at M.M. Warburg in Hamburg who recommends investors hold the stock. ``Germany is increasingly feeling an effect on profits from regulation like grid fees.''

The measures, which will include cutting as many as 1,800 jobs, should save ``several hundred million euros,'' Die Welt reported earlier, citing an interview with E.ON Energie Chief Executive Officer Klaus-Dieter Maubach.

Close Centers

E.ON Energie will bundle six of seven regional businesses and close 40 of its more than 60 service centers to centrally manage both products and prices, Maubach told the Berlin-based newspaper. The number of those locations will shrink to a maximum of 20 later on, the paper cited him as saying.

No one will be fired in the overhaul, which is expected to be finished by the end of 2012, as the company will use measures such as partial retirement, Welt said, citing Maubach.

Profit at E.ON's grid unit fell 16 percent to 460 million euros ($677 million) in the first half, the company said Aug. 13. Network fees are based on what reimbursement Germany's Federal Network Agency judges appropriate given E.ON's level of investment.

The authority, known as the Bundesnetzagentur, invalidated 25 percent of the costs the company claimed in January, Renate Hichert, a Bonn-based agency spokeswoman, said by telephone this month. The investments which determine 2008's grid fees are based on spending from 2006, she said.

E.ON said in February that it is ready to sell its grid to resolve two European Union antitrust probes into the company's business practices. The utility will have as much as two years to sell the infrastructure following approval by the EU Commission in the fall.

E.ON has lost 600,000 clients in its standard business in the ``past months,'' the newspaper said. That was more than compensated for by a gain of 800,000 customers at the utility's E-Wie-Einfach discount electricity and gas unit, Maubach told the newspaper, without specifying a timeframe.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net