The wait is over for investors wondering if AGL Energy Ltd (ASX: AGK) or ERM Power Ltd (ASX: EPW) would be successful in their bids for the electricity generation business owned by the NSW government Macquarie Generation (Macgen).
While there is still one major hoop to jump through – gaining approval from the Australian Competition and Consumer Commission (ACCC) – this morning it has been announced that AGL has entered into an agreement to acquire Macgen for $1.505 billion.
Last week the ACCC issued a statement outlining concerns regarding the proposed acquisition of Macgen by AGL and stated that its "preliminary view is that the proposed acquisition is likely to result in a substantial lessening of competition in the market for the retail supply of electricity in NSW as a result of reduced access to competitively priced and customised hedge contracts."
The ACCC also noted that if the acquisition was to proceed, AGL, Origin Energy Limited (ASX: ORG) and Energy Australia would have between 70% and 80% of the electricity generation capacity in NSW and over 85% of the retail market in NSW between them.
The tone of the ACCC's statement certainly wouldn't have filled either AGL or the NSW Government with confidence that the ACCC will ultimately grant approval – a final decision is due to be released on 4 March – presumably AGL had the winning bid (it has entered into an agreement with Macgen) so both parties are pursuing the acquisition and will await the ACCC's decision.
Importantly for shareholders, assuming the ACCC grants approval for the acquisition, then AGL plans to undertake a fully underwritten renounceable rights issue to raise approximately $1.2 billion with the balance of the acquisition costs to be funded with $350 million of bank debt.
Foolish takeaway
While AGL will gain from the acquisition of Macgen, arguably of greater consequence is that ERM loses. The acquisition of Macgen by ERM would have been transformational for the up-and-coming energy generator and retailer.
