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It would leave E.ON operating primarily as an energy networks and retail specialist, with RWE significantly strengthening its position in the renewables and clean energy generation markets.

Under the agreement, Eon would receive RWE's 76.8% stake in innogy in return for granting RWE an effective participation of 16.67% in Eon SE. It will also result in E.ON becoming exclusively focused on customer solutions and energy networks, with RWE acquiring E.ON's renewable energy assets. Further, RWE will receive the minority interests now held by E.ON's subsidiary PreussenElektra in the RWE-operated nuclear power plants Gundremmingen and Emsland.

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.

Plans to break up Innogy and divide its assets between parent RWE and E.ON, first announced a day earlier, added 4.3 billion euros to the market value of Germany's three largest utilities in the sector's largest overhaul in recent history.

EON has spun off its fossil fuel operations and invested heavily in renewables, while RWE remains the biggest power producer. Chancellor Angela Merkel welcomed the deal and said she had faith in Germany's utilities to find the best way to adapt to the country's energy shift dubbed Energiewende.

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.

While the two companies were in touch with each other over the last year, concrete negotiations about Innogy only picked up this year, the sources said. "Through this transaction E.ON would become a focused customer-oriented energy company concentrating on energy networks and customer solutions". Today it reported 2017 results, saying its adjusted net profit grew by 9% to more than Euro 1.22 billion.