AGL’s acquisition to put pressure on Origin

Power retailers may increasingly struggle to grow their customer bases.

The Australian Competition and Consumer Commission’s (ACCC) decision not to oppose the $158 million acquisition of independent power retailer Australian Power & Gas (ASX: APK) by AGL Energy (ASX: AGK) has paved the way for the energy giant to add an extra 350,000 customer accounts to its business.

The addition of these customers will increase AGL’s total electricity customers in NSW to over 800,000 and allow for synergies as AGL leverages its lower cost base across the Australian Power & Gas customer base.

In coming to its decision the ACCC concluded that “the proposed acquisition is not likely to substantially lessen competition in relevant markets.” It formed this view based upon a number of other “second tier” retailers which it believes will continue to offer disruptive pricing and competition in Victoria, NSW and Queensland where Australian Power & Gas operates.

In response to the ACCC’s decision, AGL announced that to facilitate a speedy close to the Takeover Offer, it had declared the Offer free from all defeating conditions. This declaration in turn led to major shareholders and directors accepting the Offer which means AGL’s voting interest in Australian Power & Gas is now above 75%.

With a number of power companies announcing the end of door-to-door sales, attracting customers away from their current supplier may get more difficult. While the ACCC did not oppose this transaction, further purchases of “second tier” retailers may face closer scrutiny as the potential for a lessening of completion increases from any further consolidation.

AGL’s move on Australian Power & Gas may turn out to have been a shrewd move as fellow top tier suppliers Origin Energy (ASX: ORG) and Energy Australia may have to work harder to grow their customer base organically.

Foolish takeaway

There are many defensive qualities to like about the major energy suppliers. Investors looking for companies with dependable revenue and earnings streams may wish to take a closer look at the top tier firms.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy.

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