AGL executes agreement with NSW government to acquire Macquarie Generation subject to ACCC approval
Wednesday, 12 February 2014
AGL Energy Limited (AGL) today announced that it had entered into an agreement with the New South Wales Government to acquire the Macquarie Generation (Macgen) assets for a consideration of $1,505 million1.
The acquisition of Macgen is expected to be immediately accretive to AGL’s Underlying Earnings per Share in its first full year of ownership, FY152.
The acquisition is conditional on approval by the Australian Competition & Consumer Commission (ACCC). The ACCC has previously indicated that it will make a final decision on the proposed acquisition by 4 March 2014.
AGL has fully co-operated with the ACCC throughout its review of AGL’s potential acquisition of Macgen, and will continue to do so during the remainder of the ACCC’s review process. On 6 February 2014 the ACCC issued a Statement of Issues outlining its concerns regarding AGL’s potential acquisition of Macgen. AGL believes its response to the Statement of Issues will comprehensively address the key concerns raised by the ACCC, in particular the availability of competitively priced and customised hedge contracts for independent and new entrant retailers in the oversupplied New South Wales electricity market.
AGL believes there is a strong factual basis to demonstrate that the acquisition of Macgen will not result in a substantial lessening of competition. AGL does not currently own any significant generation assets in New South Wales where the two largest electricity retailers, Origin Energy and Energy Australia, already own substantial generation assets acquired as a result of transactions previously approved by the ACCC. AGL also understands that the New South Wales Government’s bid selection process had regard to the effects of the sale on market competition in the State before making its decision to proceed with a conditional sale to AGL.
AGL intends to fund the transaction by way of a renounceable rights issue (the Offer) to existing shareholders raising approximately $1.2 billion and $350 million of bank debt. The equity raising will be deferred until ACCC approval for the transaction has been received. Subject to ACCC approval, financial close is expected in mid-April 2014.
The renounceable rights issue will be fully underwritten equity by Citigroup Global Markets Australia Pty Limited, Deutsche Bank AG, Sydney Branch and Merrill Lynch Equities (Australia) Limited.
New shares to be issued under the Offer will not be entitled to the FY14 interim dividend but are anticipated to rank pari passu for the FY14 final dividend. The FY14 interim dividend will be announced on 26 February 2014, along with AGL’s financial results for the six months ended 31 December 2013.
AGL expects that the company’s current credit rating will be reaffirmed once the funding for the transaction has been completed.
AGL’s Managing Director, Michael Fraser, said: “AGL has been the key player in bringing competition to the New South Wales electricity market. Almost our entire New South Wales electricity customer base of more than 800,000 customers has been won by competing in the market place.”
“The acquisition of Macquarie Generation is consistent with our integrated strategy and will enable AGL to remain a robust competitor to the major electricity retailers in New South Wales. It will also mean that the State’s largest generation assets are owned by a company with the financial capacity and operating experience to maintain reliability of supply, provide certainty for Macgen’s employees and provide confidence to current and future contract counterparties.”
The Macgen power stations would give AGL ownership of the lowest cost, large-scale baseload generators in New South Wales and would increase AGL’s registered generation capacity by approximately 79 percent to more than 10,600 MW. This would bring AGL’s share of generating capacity in the National Electricity Market to approximately 21 percent and add to AGL’s diverse portfolio of renewable and thermal generation assets.
Additional information about Macgen and the transaction are included in the attached presentation.
1. Includes stamp duty but not other transaction costs of $33 million.
2. EPS accretion in FY15 is based on the following key assumptions:
› The first full year of ownership is the year ending 30 June 2015;
› Spot and contract wholesale prices are materially the same as those implied by the forward curves;
› Generation volumes and plant availability are consistent with prior years and there are no material unplanned plant outages;
› Carbon pricing is either removed or moves to a floating price of approximately $7 per tonne in FY15;
› AGL raises approximately $1.2 billion under the Offer; and
› AGL raises approximately $350 million of debt.
› Based on a Theoretical Ex-Rights Price (TERP) adjusted EPS calculation.