RWE AG (RWEOY) shares surged to the top of the DAX index in Germany Friday on speculation that the country's second-largest utility could combine with France's Engie SA (ENGIY) in a deal that could be worth €50 billion ($55 billion).

RWE shares were marked 5.9% higher in Frankfurt and changing hands at €17.00 each, the highest since July, following a Reuters report that the company is looking at a share swap with Engie, formerly known as GDF Suez.

The deal, Reuters said, would also involve Innogy SE (RWEOY) , a German utility focused on, among areas, renewable energy that was spun off by RWE last year. Innogy shares were marked 4.44% higher at €35.05 each by 15:00 CET in Frankfurt.

Reuters said the proposed deal would see RWE swap all or part of its 76% stake in Innogy for a minority stake in Engie. 

RWE has previously insisted it isn't interested in a bid for its €18.4 billion ($20.5 billion) Innogy stake and said last month it remained wedded to a plan to hang on to at least 51% of it following a report by Bloomberg that Engie had spoken to advisers about the possibility of making an offer.

Innogy's value would almost certainly increase in a change of control transaction, given that "historically, utilities M&A has taken place at EV/EBITDA multiples of 9x -10x," noted Goldman Sachs in a March research note that claimed an Innogy sale would be positive for RWE and could boost valuations across the European utility sector if it led to further M&A.

Innogy has forecast adjusted Ebitda of about €2.9 billion for 2017, suggesting it could fetch €26 billion to €29 billion, a 40% premium to its prevailing share price based on the lower end of Goldman Sach's M&A multiple.

RWE has said it expected to post Ebitda of €5.4 billion to €5.7 billion in 2017, compared to €5.4 billion last year. It said that forecast adjusted net income will likely be between €1.0 billion and €1.3 billion, up from €0.8 billion this year.

Engie shares were last seen 0.63% higher in Paris and changing hands at €13.47 each.