The deal between the two energy giants has to be approved by the boards of companies as well as regulators - the European Commission and the German Antimonopoly Commission.
Utility EDF rose about 1 percent after E.ON and RWE announced they are planning a major asset swap involving RWE subsidiary Innogy. "We will comment on the latest announcements by RWE AG and E.ON SE in due course", the group's new CEO, Uwe Tigges, said.
Under the deal still subject to approval by anti-trust authorities, RWE would receive the Innogy renewables and gas storage business as well as Innogy's stake in Austrian energy supplier Kelag.
European shares rose in early trading on Monday to their highest in nearly two weeks, boosted by gains among German utilities after the sector's leading players announced a major overhaul of the industry.
The total would still be small in operating terms compared to the giants of southern Europe, who were quicker off the mark in building large-scale worldwide renewables fleets than their German counterparts. Innogy and E.ON have also rallied.
RWE would, in turn, gain an effective participation of 16.67 percent in E.ON.
But the heart of the agreement is to give E.ON the retail and network businesses of both companies, and give RWE the combined renewable-generation businesses.
Eon would then focus on energy networks and retail, with RWE more generation focused.
"A win-win?" Morgan Stanley suggested in a note, reiterating its "in-line" view of the industry.
Innogy, in turmoil since former Chief Executive Peter Terium resigned in December, on Monday said controllable costs would be slashed by about 400 million euros ($499 million) through the end of 2020.