Royal Dutch Shell has announced that it has foray into Australia's extremely competitive power sector with an A$617 million ($419 million) purchase offer for ERM Power Ltd.
The deal would immediately give Shell a power supplier with practically 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 gas-fired power stations.
Shell, already one of Australia's biggest gas producers, wants to use its global scale in oil and gas to build a power business, as the world speedily shifts towards cleaner energy. It plans to boost annual spending on the strategy to between $2 billion and $3 billion by 2025.
"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 in a declaration.
ERM agreed to the offer, pitched at a big 43% premium to its last closing price, and suggested shareholders should accept it in a vote expected in November.
ERM's founder and top shareholder, Trevor St Baker, who speaks for 27% of the company's shares, said in a statement he would accept the offer of A$2.465 a share if no higher bid emerges.
Shell, which was advised by UBS, said Australia is one of the core markets for its new 'Emerging Power' theme, focused on strong growth in renewables to complement traditional fuels
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