UPDATE 3-Thousands of UK jobs at risk as E.ON breaks up Npower

* Npower's industrial, commercial customers to be carved out

* Restructuring to result in 4,500 job losses - British
union

* Talks with unions over restructuring have started-E.ON CEO

* E.ON shares up 1.6%
(Adds CEO comments, analyst comment, updates shares)

By Christoph Steitz and Tom Käckenhoff

FRANKFURT/DUESSELDORF, Germany, Nov 29 (Reuters) - German
energy group E.ON plans a 500-million-pound ($642
million) break-up of the struggling British Npower division it
inherited from Innogy, which a union said could put up
to 4,500 jobs at risk.

The revamp, the latest among established British retail
power providers, effectively removes one of the market's
so-called 'Big Six' players, which have lost customers to
nimbler recent entrants and been hit by a regulatory price cap.

E.ON's plan includes managing Npower's residential and small
and medium-size business customers on the same platform as its
own, while putting Npower's industrial and commercial customers
into a separate business. The rest of Npower will be closed.

E.ON Chief Executive Johannes Teyssen said the group would
examine options for Npower's industrial and commercial business,
the division's only profitable part, suggesting it might be sold
at some point.

The shake-up will result in up to 4,500 job losses at
Npower, British union UNISON said, nearly 80% of the division's
total staff.

"The UK market has been very challenging for several years,"
Teyssen said. "Churn (customer switching) rates are high,
margins slim, and the price caps introduced this year have
exacerbated the situation. No company operating there has been
spared these difficulties."

Teyssen said talks with British unions about the plans had
started.

Shares in E.ON were up 1.6% at 0951 GMT.

"We see this initial update as encouraging, given likely low
market expectations around the outlook for Npower," Jefferies
analysts wrote, keeping a "buy" rating on E.ON stock.

Npower has been suffering more than its large rivals,
including E.ON itself, Centrica's, SSE, EDF
and Iberdrola, partly because of internal
billing problems.

E.ON said it expected its combined British business to
achieve at least 100 million pounds of earnings before interest
and tax (EBIT) and positive free cash flow from 2022 onwards.

E.ON took over Npower as part of a far-reaching asset swap
with RWE that included the break up of Innogy. The
deal, first announced in March 2018, has turned E.ON into a pure
energy retail and networks group.

As a result of the transaction, E.ON's net debt nearly
doubled to 39.6 billion euros ($43.7 billion) at the end of
September.

E.ON also said on Friday the deal had led it to raise its
2019 adjusted EBIT forecast to 3.1-3.3 billion euros from
2.9-3.1 billion. In the first nine months of the year, adjusted
EBIT fell 6% at 2.2 billion euros.

($1 = 0.7794 pounds)

($1 = 0.9073 euros)
(Editing by Jason Neely and Mark Potter)