Analysis: Centrica’s €1.125bn bid gives it the power
The sale of Bord Gáis will in theory drive down utility bills for consumers
Barring last-minute surprises, the British utility will take over Bord Gáis Energy early next year
Talks on the sale of Bord Gáis Energy re-started in earnest early this week when advisers to both the company and its owner, the State, sat down with the three suitors whose offers the Government rejected last month for being too low.
Despite the rebuff, the three, Viridian (owner of Bord Gáis’s local rival Energia), winning bidders Centrica (which controls British Gas) and US investor Blackstone, were all still interested in buying the gas and electricity business, for which they had reportedly offered more than €900 million in November, short of the Government’s target of €1 billion-plus.
It is understood that after the Government shot down these offers, the two advisers, Royal Bank of Canada, which was acting for the company, and Barclays Bank, retained by State agency New Era, continued to push to see if a deal could be done.
They maintained contact with the bidders and negotiations with all three began in a serious way on Monday. A consortium of Centrica, Brookfield Renewables and Icon Infrastructure, emerged yesterday as the preferred bidder with an offer of €1.125 billion. The phrase “preferred bidder” means that a deal has yet to be done, but the sale process is now a one-horse race.
To give it added weight, Minister for Communications, Energy and Natural Resources Pat Rabbitte said late yesterday that both the Government and the buyer hope to sign off on the transaction in January. So barring last-minute surprises, the British utility will take over Bord Gáis Energy early next year.
Its price was the highest on the table. The next nearest bidder, Blackstone, was within €20 million of the offer. Although price was not the sole consideration, it was the most important, particularly given the robust way in which both Rabbitte and his Cabinet colleague, Brendan Howlin, defended the Government’s decision not to sell in November as it believed the offers at the time undervalued Bord Gáis Energy.
Centrica may have only pipped the US fund at the post, but it is likely that the Government also prefers it because it is an already-established energy supplier. Its arrival in the Irish market should in theory boost competition in electricity and natural gas prices and help drive down households’ utility bills.
Early last year, shortly before the Government formally announced that it intended selling the Bord Gáis retail business, Rabbitte said if doing so would attract a big player to the Irish market, then that would “be in line with Government objectives”. The third bidder, Viridian, is already supplying gas and electricity to businesses and is launching a service for households, so it would not be a new entrant.
It remains to be seen whether the Centrica-led consortium has an impact on gas and electricity prices, but the company definitely has the muscle to compete with the existing suppliers, led by ESB, Energia and Airtricity.
The British utility is a global company with deep pockets. It had about £800 million in cash at the end of June and it made close to £1.4 billion in profits in the first six months of this year. It is a very similar business to Bord Gáis Energy, in that it supplies natural gas and electricity to businesses and consumers. Like the Irish company, it was once state owned.
It is buying the electricity and gas supply operation, a power plant in Whitegate, Co Cork with the capacity to supply 400,000 homes, and wind farms, both built and under development that can produce up to 500 mega watts of electricity, and Firmus which operates in the north.
The natural gas network, which moves gas around the country, is considered strategically important and remains in State hands.
As the company was saying nothing last night, it is hard to guess what may have changed Centrica’s view and prompted it to up November’s offer. The simplest answer is that it and its partners wanted the company badly enough. Centrica has had a presence on the ground here for more than two years.
Once it became clear in late 2010 that the troika wanted the State to sell some of its assets, and at least one of its energy companies in particular, the British player made its feelings known to the Government through a number of meetings with energy department officials.
The next question is what happens to the money? Some of it will be used to pay down the State’s debt, but sources last night said that at least half the proceeds from the €1.125 billion sale will go towards job creation, reflecting the terms of a deal with the troika, which agreed a 50/50 split between these purposes with the Government.
It is not clear yet what will happen to the company. Sources close to losing bidder Blackstone claimed that it could be broken up. “Centrica will take the gas business, Brookfield the wind and Icon the Firmus business,” they argued, pointing out that the US fund had pledged not to break up the company.