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UPDATE 2-Germany's E.ON to break up UK's Npower in 500 mln stg overhaul

Christoph Steitz and Tom Käckenhoff

* Npower's industrial, commercial customers to be carved out

* Restructuring to result in 4,500 job losses - British union

* Talks with unions over restructuring have started-E.ON CEO (Adds details, shares)

FRANKFURT/DUESSELDORF, Germany, Nov 29 (Reuters) - German energy group E.ON plans a 500-million-pound ($642 million) break-up of the struggling British Npower division it inherited from Innogy, which an union said could put up to 4,500 jobs at risk.

The revamp is the latest among established British retail power providers, which have been losing customers to nimbler recent market entrants and been hit by a regulatory price cap.

E.ON's plan includes managing Npower's residential and small and medium-size business customers on the same platform as its own, while putting Npower's industrial and commercial customers into a separate business. The rest of Npower will be closed.

The shake-up will result in 4,500 job losses at Npower, British union UNISON said, which would be nearly 80% of the division's total staff.

"The UK market is currently particularly challenging. We've emphasised repeatedly that we'll take all necessary action to return our business there to consistent profitability," E.ON CEO Johannes Teyssen said in a statement.

At 0815 GMT, E.ON shares were up 2.2%.

Teyssen said talks with British unions about the plans had already started.

Npower, one of Britain's "Big Six" energy providers, has been suffering more than rivals, including E.ON itself, Centrica's, SSE, EDF and Iberdrola , partly because of internal billing problems.

E.ON said it expected its combined British business to achieve at least 100 million pounds of earnings before interest and tax (EBIT) and positive free cash flow after smart meter investments from 2022 onwards.

E.ON took over Npower as part of a far-reaching asset swap with RWE that included the break up of Innogy. The deal, first announced in March 2018, has turned E.ON into a pure energy retail and networks group.

As a result of the transaction, E.ON's net debt nearly doubled to 39.6 billion euros ($43.7 billion) at the end of September.

E.ON also said on Friday the deal had led it to raise its 2019 adjusted EBIT forecast to 3.1-3.3 billion euros from 2.9-3.1 billion. In the first nine months of the year, adjusted EBIT fell 6% at 2.2 billion euros.

($1 = 0.7794 pounds)

($1 = 0.9073 euros) (Editing by Jason Neely and Mark Potter)