Top shareholder in Germany's RWE rejects brown coal spin-off call

DUESSELDORF, Germany - RWE's municipal investors, who together represent its biggest shareholder, dismissed an activist investor's call for a rapid spin-off of the brown coal division of Germany's largest power producer, adding it would threaten the local economy and jobs.

The Association of Municipal RWE shareholders (VkA) mostly represents cities and municipalities in North Rhine-Westphalia, Germany's most populous state and home to RWE RWEG.DE and other big industrial groups, including Thyssenkrupp TKAG.DE.

VkA's comments on Friday are its first public response to demands by activist investor Enkraft, which disclosed a stake in RWE in September and is pushing for a divestment of its brown coal unit to remove a major drag on its valuation.

Overall, the VkA represents 14.1% of RWE's shares, a stake that is currently worth around 3.6 billion euros ($4 billion).

"The course cannot be altered overnight. Such a path needs to be supported by measures to cushion the impact," VkA co-Managing Director Ingolf Graul told Reuters.

"A fast exit from coal has consequences for jobs, the regional economy and also on trade tax. Municipalities must always keep this in mind," he added.

Enkraft, whose stake of more than 500,000 shares is big enough to request motions be put on the agenda at RWE's annual general meeting next month, said divesting brown coal could lift the shares above 60 euros apiece.

RWE's shares traded flat on Friday at 37.66 euros.

"All the resources and know-how needed to manage the coal phase-out are pooled under the roof of RWE. This would no longer be the case following a spin-off," VkA co-Managing Director Udo Mager said.

Activist investor Engine No. 1 proved what small stakes can achieve when it won three board seats at oil major Exxon Mobil XOM.N last year through what sources said was a $12.5 million investment.

RWE referred to previous comments by management, which said selling its brown coal unit to another operator would not speed up Germany's targeted coal exit and that building out renewables fast was more decisive for its transformation.