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Genesis Energy has agreed to acquire the retail LPG business of Todd Corp's Nova Energy unit for $192 million, a move that will give New Zealand's biggest electricity retailer almost a fifth of that market.
The deal, which is subject to some limited due diligence, will increase Genesis Energy's share of retail LPG in New Zealand to 19% from 3%, making it the second-largest player in that market by customers behind Contact Energy.
The deal would deliver about $17m of earnings before interest, tax, depreciation, amortisation and movements in the value of financial instruments in 2018 before integration costs, and "generate synergies of $4-6m per annum from FY19 onwards mainly from vertical integration benefits," the company said in a statement. The purchase price represents an ebitdaf multiple of 8.5 times after synergies and will boost per-share earnings by about 5%, it said.
"It will significantly accelerate our growth aspirations in the key LPG market consistent with our announced strategy which the company outlined last year," said chair Jenny Shipley.
Nova Energy's LPG distribution network "complements Genesis Energy's existing customer base as well as removing barriers to growth in new market segments such as bulk and SME," it said. That network includes a nationwide retail and bulk distribution system with 35,000 bottled gas customers across residential, commercial and industrial segments. The acquisition also includes about 6,400 dual fuel electricity and LPG customers and an option to acquire Nova's 12.5% interest in Liquigas for additional consideration.
The Nova purchase is the second large acquisition for Genesis Energy in the past six months after it agreed to buy NZ Oil & Gas's 15% share of the Kupe oil and gas field for $168m last November, lifting its stake in the field to 46% and giving it close to half Kupe's annual production of some 90,000 tonnes of LPG.
"It's completely unsurprising. It was always just a matter of which business Genesis would pick up," said John Kidd, energy equities analyst at Woodward Partners. "For them to plug the hole between upstream and downstream does makes absolute sense." The synergies could actually be higher than Genesis identified in its statement today, he added.
Genesis Energy's domestic LPG sales had historically been small and the company had been forced to export LPG at low margins.
The acquisition will be funded from existing debt facilities but Genesis Energy is also considering a sale of capital bonds structured to have a 50% equity credit, it said. Settlement is expected on May 31, subject to due diligence, with rebranding expected to be complete by the end of July.
Genesis Energy shares last traded at $2.135 and have increased 3.9% in the past 12 months, lagging behind the S&P/NZX 50 Index's 8.7% gain.