April 18, 2018 / 12:04 PM / 5 months ago

Oil major Total pays $1.7 billion for French electricity retailer

PARIS (Reuters) - Oil company Total (TOTF.PA) said it will buy a majority stake in French electricity retailer Direct Energie (DIREN.PA) in a 1.4 billion euro ($1.73 billion) deal that beefs up its challenge to state-owned market leader EDF (EDF.PA).

The logo of French oil giant Total is pictured at its first gas station in Mexico City, Mexico January 25, 2018. REUTERS/Daniel Becerril

The deal is part of Total’s strategy to grow its low-carbon energy assets to 20 percent of total assets by 2035 from 5 percent today and comes as other global oil and gas majors also shift to more renewable energy and electricity.

“This friendly takeover is part of the group’s strategy to expand along the entire gas-electricity value chain and to develop low-carbon energies,” CEO Patrick Pouyanne said.

Shortly after being appointed CEO in 2014 Pouyanne said electricity will be the energy of the 21st century. Since then Total has bought upstart power vendor Lampiris, battery specialist Saft and renewable energy firm Eren, putting together an a mini-electricity utility.

With Direct Energie, Total has acquired the biggest independent challenger to French market leader EDF, as well as a portfolio of gas-fired and renewable energy power plants.

Rival Royal Dutch Shell (RDSa.L) made a similar move in February, buying British-based retail power provider First Utility, which serves around 825,000 homes.

Shell also supplies power to industrial customers in Britain and has recently acquired a solar power company in the country.

Several oil majors are also entering the business of electric vehicle charging in order to hedge their petrol stations businesses.

“Total was already ahead of its peers in terms of M&A spending on renewables and other clean technologies. This deal shows it is serious (about this strategy),” said Wood Mackenzie research director Valentina Kretzschmar.

Total will pay the controlling shareholders of Direct Energie 1.4 billion euros for 74.33 percent of its capital. Direct Energie’s board has unanimously approved the takeover.

Once the deal is completed, Total will launch a tender offer for the rest of Direct Energie’s shares at the same price of 42 euros per share, a 30 percent premium over the April 17 close and a 24 percent premium over its three-month average price.

The offer values Direct Energie at about 12.5 times 2018 core earnings, Total said.

Total - which first entered the French retail power market in 2016 with the Lampiris acquisition - has 1.5 million French electricity clients and will add 2.6 million more with the deal.

It is targeting over 6 million customers in France and more than 1 million in Belgium by 2022.

Total is one of several newcomers in French power retailing, which was opened to competition a decade ago, but EDF still dominates with a market share of about 85.5 percent.

Gas and power utility Engie (ENGIE.PA) had 3.8 million electricity clients in France at the end of December.

Direct Energie CEO Xavier Caïtucoli told Reuters that Pouyanne had asked him to remain as head of Direct Energie as it is integrated into Total. No decision had been taken on whether to keep the Direct Energie name or to switch to the Total brand.

The deal will add Direct Energie’s 1.35 gigawatts (GW) of installed generation capacity to Total’s 900 megawatts (MW). Direct Energie also has a development pipeline of 2.4 GW of mainly renewable energy capacity.

Total revised it aims to have a global capacity of 5 GW of installed capacity within five years to 10 GW after the deal.

Direct Energie shares surged 30.5 percent to 42.08 euros, while Total shares were up 1 percent.

Additional Reporting by Ron Bousso; Writing by Geert De Clercq; Editing by Sudip Kar-Gupta/Jason Neely/David Evans

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