FRANKFURT (Reuters) - Shares in German utility RWE (DE:RWEG) rallied on Monday on renewed investor hopes for a deal for its Innogy (DE:IGY) unit as well as on expectations of a less stringent climate policy following the failure of coalition talks in Germany.
RWE is looking at ways to cut its 16.8-billion euro (£14.9 billion) stake in retail business Innogy (DE:IGY) and one option involves a deal with Italy's Enel (MI:ENEI), Reuters reported at the weekend.
Despite having no immediate need for cash, RWE has recently held talks with Enel, Europe's largest utility by market value, according to a person familiar with the matter.
RWE shares were up 3.1 percent on Germany's DAX market (GDAXI) , which was off 0.34 percent at 0945 GMT. Investor sentiment was also helped by expectations that the collapse of talks to form a government in Germany could lead to a more lenient outcome for RWE.
The Greens, which had been expected to be part of a new German government, have been pushing for the closure of coal-burning power plants. That threat has weighed on RWE's share price this month.
"The plant closures will likely be delayed," one trader said.
Analysts from Goldman Sachs (NYSE:GS) said in a note on Monday that they see large potential for RWE's price due to factors such as compensation payments for early plant closures, an expected increase in power prices and an M&A related valuation for Innogy.
A possible deal with Enel is the latest scenario for Innogy after sources earlier this year said RWE and France's Engie (PA:ENGIE) had studied a share swap under which RWE would trade part or all of its stake in Innogy for a minority stake in Engie.