E.ON Plans to Buy Back Stock, Shares Soar

E.ON the world's largest utility, said on Wednesday it plans to buy back shares, raise its dividend and invest 60 billion euros (US$80.53 billion), sending its stock up more than 5% in after-hours trading.

The company, Germany's largest publicly traded company, plans to spend 7 billion euros buying back shares and wants to have started investing the earmarked funds by 2010 in "targeted growth" and "generating capacity."

E.ON shares jumped 5.6% to 121.32 euros in floor trading after the electronic market closed as shareholders hailed the company's plans to use its financial clout more effectively.

The Duesseldorf-based company has divested assets worth more than 60 billion euros in its seven-year history but has been accused of not using its funds efficiently, leading investors to prefer other European utilities.

Chief Executive Wulf Bernotat had sought to spend more than 42 billion euros to take over Spanish peer Endesa but had to settle for a compromise with competitors, leaving shareholders to wonder what his next move would be.

E.ON aims to expand "in its core European market and adjacent growth regions," the company said in a statement, without giving details.

"E.ON's extensive new build-and-investment program will increase the company's generating capacity by about 50 percent by 2010," it said.

New power plants and cost cuts will help the company increase adjusted earnings before interest and taxes 10% annually on average, to 12.4 billion euros by 2010, the utility said. In three of the past four years, adjusted EBIT had risen more than 10%.

E.ON plans to increase its dividend by as much as 20% on average in the years through 2010, in line with dividend increases in the past. In the past four years, the dividend has risen between 14% and 22%.

E.ON plans to take on more debt, using its ability to borrow cheaply because of its steady earnings flow.

It aims to have 3 euros of what it calls "economic net debt" for each euro of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

The current ratio of economic net debt to adjusted EBITDA is 1.5, with 18.2 billion euros in economic net debt and 11.8 billion euros in adjusted EBITDA. Economic net debt includes the company's liabilities plus its pension liabilities and obligations for its nuclear power plants, minus its cash and other funds.

Bernotat is seeking to make E.ON more attractive to investors with these measures, as it has fallen behind its European peers.

The company is valued at about 14 times forecast 2008 earnings, the second-lowest valuation on the 21-member DJ Stoxx utility index, according to Reuters data.

Its shares have risen about 13% this year, less than smaller competitors Electricite de France and Gas Natural.