UPDATE 4-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 hit four-month high (Adds union 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 unions 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. Union Unite, which has about 1,000 members at Npower, said the scale of the cuts was "horrific".

"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 rose as much as 3.7% to their highest level in more than four months.

"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)