In addition, RWE will - after E.ON has gained control over innogy - get substantially all of E.ONs renewables business including the economic benefits as of January 1, 2018.
While asset swaps had been discussed with other European companies, too, RWE never felt comfortable with taking on large exposure to southern Europe, the people said, citing ill-fated forays into the region by E.ON EONGn.DE during the last decade.
RWE plans to combine Eon and Innogy's renewables businesses into what it called a "leading European utility for renewables and security of supply with a broadly diversified portfolio of renewable and conventional generation assets".
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.
Cash exchanged includes about €5 billion ($6.2 billion) for E.ON to buy out Innogy's minority shareholders, and RWE paying E.ON €1.5 billion ($1.85 billion), with the rest of the deal valued in shares and asset swaps.
EON has spun off its fossil fuel operations and invested heavily in renewables, while RWE remains the biggest power producer.
"It's good if there are competitive and internationally oriented energy providers in Germany".
In a letter to staff seen by Reuters, Innogy interim Chief Executive Uwe Tigges said Innogy's management and supervisory boards would thoroughly assess the planned deal, which was agreed in principle and still requires antitrust approval.
However, Innogy, which reported its annual results on Monday, said that it had so far not reflected on the proposal and would comment at a later stage.
Eon would then focus on energy networks and retail, with RWE more generation focused.
If approved, the deal would spell the end for Innogy as a standalone company.