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Shell (RDS.A) to Acquire Australia's ERM Power for $419M

Zacks Equity Research

Royal Dutch Shell RDS.A has offered to buy ERM Power Ltd for A$617 million ($419 million), thus marking its entry into Australia’s highly competitive energy market. ERM is Australia's second largest energy retailer to businesses and industry.

Deal Details

The all-cash takeover bid represents 43% premium to ERM’s closing share price of A$1.72 on Aug 21, thereby valuing ERM at A$2.46 a share. Post the deal’s announcement, shares of ERM increased to four-and-a-half-year high of A$2.50. After the culmination of the agreement, Shell will obtain full ownership of the ERM Power. The deal is expected to be completed in 2019.

Deal Motive

By 2030, Shell aims at becoming the world’s largest power producer. With the ERM contract, Shell has strengthened its position in the electricity sector, taking a step forward to cleaner energy. By 2025, it strategizes to uplift its annual spending on power business between $2 billion and $3 billion.

Deal Benefits

With this pact, Shell — one of the world’s largest oil and gas companies — will have a power supplier capturing nearly 25% share of the commercial and the industrial retail market in Australia. The deal will also provide the integrated energy major with two gas-fired generators in a bid to make Australia free of coal-fired stations. Commenting on this deal, the founder and shareholder of ERM Power stated that the acquisition will enhance its potential as Shell has the required resources and networks.

Royal Dutch Shell PLC Price

Royal Dutch Shell PLC Price

Royal Dutch Shell PLC price | Royal Dutch Shell PLC Quote

Zacks Rank & Key Picks

Shell carries a Zacks Rank #5 (Strong Sell).

Better-ranked players in the energy space include Enbridge Inc ENB, Dril-Quip, Inc. DRQ and World Fuel Services Corporation INT, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Enbridge earnings beat the Zacks Consensus Estimate in three of the last four quarters.

Dril-Quip earnings beat the Zacks Consensus Estimate in three of the previous four quarters.

World Fuel Services earnings beat the Zacks Consensus Estimate in all the trailing four quarters.

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