The RWE-E.ON swap will also hand RWE - Germany's biggest electricity producer - a 16.67 percent stake in E.ON by way of a 20 percent capital increase.
Under the agreement in principle, E.ON would acquire RWE's 76.8 per cent stake in Innogy, but at the same time most of E.ON and Innogy's renewables business, minority stakes in two nuclear power plants, and Innogy's gas storage business, as well as some other assets, would be transferred back to RWE.
The complicated German deal has sparked fresh concerns within the Competition and Markets Authority (CMA) because it includes RWE's spin-off business Innogy, which is also Npower's parent company.
The deal would give E.ON greater economies of scale in power distribution and retail and RWE in renewables, making it easier for them to cope with Germany's rapid shift to cleaner energy sources. In recent years both RWE and E.ON have sought to split their operations into forward-facing business units focused on renewables and smart grids and legacy operations holding the bulk of their fossil fuel assets.
Before striking a deal with E.ON, RWE held talks with European peers Enel and Engie and came close to a deal with Spain's Iberdrola before Christmas, people familiar with the matter said.
Germany's energy landscape has been rapidly transformed since Chancellor Angela Merkel announced the complete phaseout of nuclear energy after Japan's 2011 Fukushima disaster. As a result, it does not believe the E.ON deal with RWE will affect its own merger.
Germany's cartel office said it was too early to comment on possible hurdles in the planned asset swap deal, which is expected to involve German and European antitrust regulators. It has been in turmoil since former Chief Executive Peter Terium resigned in December and on Monday said it would cut 400 million euros in costs through the end of 2020.
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