DCC is to acquire the business of Shell Direct UK for a total investment cost of €23 million in a move that more than doubles its home heating oil operations in Britain.
DCC's energy division will pay €20.1 million for the trade, assets and goodwill of the business, which supplies heating oils and transport fuels to domestic, agricultural and small commercial and industrial customers in the UK. A further working capital requirement of €3 million brings the total investment to just over €23 million.
Shell Direct UK operates from 36 depots across Britain and employs around 500 people. It currently has sales volumes of around 600 million litres per annum, which will bring DCC's sales volume in Britain to around 1.1 billion litres, making it the largest independent oil marketing and distribution business in Britain.
The assets being acquired include 15 freehold and eight leasehold oil depots, 199 road tankers and five customer services centres, and have a book value of €12.9 million.
DCC said it expected the business, which will operate as a Shell-branded distributor trading as Emo Oil, to be modestly profitable in the first full year of ownership. The company expects to significantly increase the profit contribution from the business as it brings its experience of the business to bear.
Analysts welcomed the deal, describing it as an "excellent bolt-on acquisition" and "a logical and low-risk move for DCC".
NCB analyst Mr John Sheehan said the purchase would have no material impact in the current financial year, but should add 1.5 cents to earnings per share in the year ended March 31st, 2006, and three cents the following year.
"Over the medium term, we would see scope for this business to add six to seven cents to earnings," he added.
Analysts also said the deal was important strategically as it provided DCC with a platform for further growth in a highly fragmented market, a view repeated by the company's management.
DCC chief executive Mr Jim Flavin said the purchase fulfilled DCC's strategy to have a nationwide business in oil sales and marketing, as well as liquefied petroleum gas, in Britain.
"The acquisition will leave DCC well positioned to make further acquisitions of a bolt-on nature in the fragmented oil marketing and distribution business in Britain," he added.
The Shell acquisition follows the purchase three years ago of BP's oil marketing and distribution business in Scotland.
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