How IR drove a major corporate restructuring at RWE
Over the years, IR has grown from a financial communications channel to a key adviser to management teams and boards. Nowhere is that more apparent than the recent corporate restructuring at German utility RWE, where IR first prompted a strategic review and then helped craft a bold new direction for a business that had lost the faith of the capital markets.
Gunhild Grieve, head of investor relations at RWE, explained what happened in a case study presentation at the IR Magazine Conference – UK & Ireland last year (scroll down for video).
In the years after the financial crisis of 2008, RWE came under extreme pressure, said Grieve at the conference. First the economy declined and power prices went down. Then, following the Fukushima nuclear plant disaster, the German government announced it would phase out nuclear power – a big part of RWE’s business.
The company responded by selling off non-core assets and cutting costs but investors weren’t reassured. Things got even worse when the German government said it could also phase out coal, another large provider of revenue for the firm. Meanwhile, a competitor announced a major restructuring, further putting RWE’s woes in the spotlight.
Investors no longer wanted to hear from the company, said Grieve. So in 2015 the IR team locked itself in a room for two days with a blank sheet of paper and tried to reimagine the equity story in a way that would win over the capital markets. The team took the new vision to the board, which responded by setting up a major strategic review.
During this exercise, two teams competed to come up with a new corporate model for RWE that investors would support. From this process, the company formulated a plan to bundle RWE’s downstream and renewables businesses – the parts of the company that were growing – and bring them to market as a new company called innogy.
After nine months of work, innogy debuted on the Frankfurt Stock Exchange in October 2016, explained Grieve. Investors appeared to welcome the restructuring: both innogy and RWE saw their shares rise after innogy’s IPO. Some commentators thought the new company had been priced marginally too high, but an extra euro on the price at least meant a better return for RWE.
Concluding her talk, Grieve urged IR teams to be courageous and challenge management to help shape the direction of the company, as only IR can bring a detailed knowledge of the investment community to the table. But, she cautioned, IR must also earn the respect of the C-suite and board before it can play its role as a key strategic adviser.