RWE typifies corporate Europe's investment dilemma

Reuters

24-03-2025

LONDON, March 24 (Reuters Breakingviews) - As boardroom tussles go, activist Elliott Investment Management's campaign at RWE (RWEG.DE), opens new tab looks relatively collegial. The UK arm of the U.S. activist investor on Monday disclosed, opens new tab a 5% stake in the 24-billion-euro German energy giant, and cheered its recent decision, opens new tab to scale back capital expenditures while nudging CEO Markus Krebber towards bigger share buybacks. The only room for disagreement seems to be on the timing, which gets at a more fundamental problem for European bosses: how much store to set in a nascent public and private investment boom?
RWE, like other continental companies, increasingly seems to sense that the marginal euro may be better spent at home rather than in the volatile Unites States. That's especially true for green-focused companies like the Essen-based electricity generator, whose stateside renewable projects now face a more hostile political environment under President Donald Trump. Boss Krebber last week cut his 2025 to 2030 investment programme by 10 billion euros, or around 25%, which included reducing future capital deployed to U.S. wind power.
The question is what to do with the money saved. Elliott wants Krebber to 'significantly increase and accelerate' an existing 1.5-billion-euro buyback programme. In purely financial terms, that makes sense: RWE trades at 6 times forward EBITDA, using LSEG Datastream figures, compared with 7 times and 9 times respectively for peers Orsted (ORSTED.CO), opens new tab and Iberdrola (IBE.MC), opens new tab. Repurchasing equity at a discounted price creates value for shareholders and comes with less risk than splurging on new capital-intensive energy projects.
Yet Krebber also has a good reason to wait. Friedrich Merz, the Christian Democrats leader who is busily forming the next German government, has earmarked a fifth of a planned 500-billion-euro infrastructure fund for climate and economic transformation. A good chunk of that money could in theory boost domestic renewable champions like RWE. Committing to new mega-buybacks before the plans have even been hatched may be premature – and might send the wrong message to investment-hungry politicians in Berlin.
The saving grace is that RWE may be able to have its cake and eat it. Doubling, or even tripling, the buyback would still leave billions available for future capital expenditures at home, especially if Krebber succeeds with other cash-boosting plans like a business disposal and farming out bits of new projects to partners. The RWE CEO has also raised his targeted internal rates of return on future investments to 8.5% from 8%, which should help to calm Elliott's nerves about spending.
Yet the debate nonetheless exemplifies an issue that CEOs in the defence, manufacturing and energy sectors will increasingly have to grapple with in the coming months. European capitals are making big investment promises, but specific new projects are so far thin. In the meantime, cash-hungry shareholders will keep circling.
Follow @jenjohn_, opens new tab on X
CONTEXT NEWS
Elliott Advisors, the UK arm of the $73 billion U.S. activist hedge fund Elliott Investment Management, on March 24 disclosed a roughly 5% stake in German energy group RWE.
The investor run by Paul Singer said that it welcomed RWE's decision to reduce its future investment programme by 10 billion euros or 25%, but wished for more clarity over shareholder returns including stock buybacks.
RWE's shares rose by roughly 2% to 32.8 euros, as of 1123 GMT on March 24.
For more insights like these, click here, opens new tab to try Breakingviews for free.