Municipal shareholders have reacted angrily to the RWE management’s decision to scrap its dividend.

These cities in Germany’s Ruhr region, are already badly stretched in accommodating asylum seekers, and had been relying on the dividend as part of their ability to cope with the influx.

The municipalities are also objecting to what they maintain is a failure to communicate strategy with them. According to the FT, such is the extent of anger at the decision, that the relationships the company has had with the municipalities for well over a century are strained to the point that calls are being made for RWE’s (FWB: RWE) upper management to be replaced.
Peter Terium of RWE
Municipal shareholders, who own around 24 per cent of RWE’s stock, have hinted that they might retaliate by refusing to extend local electricity and gas network licences with the company, many of which expire by the end of the year, or by delivering a no-confidence vote in management at the annual meeting next month.

The impact of the Energiewende policy has squeezed margins at coal and gas-fired power generation plants and sent wholesale electricity prices into a tailspin. The company’s latest announcement of record losses informed the decision but bosses will still need investor goodwill and support to facilitate the spin off its renewable, grid and retail business into a new entity, a move they hope will turn around the fortunes of the utility.

Ernst Gerlach, a director at VKA, which represents the group’s municipal shareholders, told the Financial Times that the dividend cut was just the latest of a series of moves “that have thoroughly undermined our trust in management”. 

He said the decision would cause “massive pain” to some cities that were already struggling to cope with the burden of housing and integrating tens of thousands of asylum-seekers.

He said the VKA is considering measures “that would make clear to management that they can’t treat an anchor shareholder this way.”

Formed in 1898, RWE had been an upward curve for decades, with its core municipality shareholders also simultanously benefiting. However share price has declined from €48 before the Fukushima disaster in 2011, to just €11 now.

Gerlach also complained about an extension to CEO Peter Terium’s contract last year and the failure to communicate the move into a renewables spin-off. The restructuring plan will leave them with only an indirect stake in the new renewables-focused company.

“We have also never had a single coherent response to the question we keep asking, which is what the company’s future business model will look like,” said Mr Gerlach.

RWE declined to comment on his criticisms. But at a press conference this week, Rolf Martin Schmitz, chief operating officer, said municipal shareholders should “get real.” “We have distributed many billions in the last years — maybe even too many.”

Essen, where RWE is based, owns 18.7m shares in the group: it had expected a dividend of €0.50 for 2015 and a total revenue stream of €9.3m, which will now vanish. That situation comes against a background where the city passed a new budget that increases its deficit for the year from €3m to €37m, in part to cover the cost of accommodating refugees.

Mülheim an der Ruhr will miss out on dividend payments of €7.2m — around 1.1 per cent of its total expected revenues for the year — and now faces a €4m hole in its budget.

Uwe Bonan, town treasurer, said “we can’t just accept a total scrapping of the dividend. That must have consequences, such as a vote against discharging the management at the AGM. “

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