Shell’s $617 million Aussie power play
ROYAL Dutch Shell has made its first foray into Australia’s power sector with a $617 million takeover offer for Asx-listed ERM Power.
The deal would instantly give Shell a power supplier with almost a quarter share of the commercial and industrial retail market in Australia, second only to Origin Energy in that space.
It will also get two fired power stations.
Shell, already one of Australia’s biggest gas producers, gasis looking to use its global scale in oil and gas to build a power business as the world rapidly shifts towards cleaner energy.
“This acquisition aligns with Shell’s global ambition to expand our integrated power business and builds on Shell Energy Australia’s existing gas marketing and trading capability,” Shell Australia’s country chair Zoe Yujnovich said.
ERM agreed to the offer, pitched at a 43 per cent premium to its last closing price of $1.72, and recommended shareholders accept it in a vote expected in November.
ERM’S founder and top shareholder, Trevor St Baker, who speaks for 27 per cent of the company’s shares, said in a statement he would accept the offer of $2.465 a share if no higher bid emerged.
Shell, which was advised by UBS, said Australia was one of the core markets for its new “Emerging Power” theme, focused on strong growth in renewables to complement traditional fuels.
ERM chief executive Jon Stretch said it was not clear if he would stay on if the takeover went ahead, but there was little overlap with Shell’s existing business in Australia, so he expected most of ERM’S staff would remain with the business.
“The focus will be on combining for growth opportunities,” he told reporters.
ERM’S shares soared to a four-and-a-half year high of $2.50 after the bid was announced and last traded at $2.44, just below the offer price, indicating investors don’t expect a higher offer.
It yesterday reported net profit of $42 million for the 2019 financial year, including contributions from renewable energy certificates, on sales of 17.7 terawatt hours of power. It forecast sales would grow to 18.5 TWH this year.
Origin Energy, which also reported its results yesterday, said it was unfazed by the pending entry of Shell in power retailing, saying it had grown its share of commercial and industrial customers in a highly competitive market.
“I see no change to that,” Origin chief executive Frank Calabria said.