Mercury (ASX:MCY) share price dips despite acquisition news

Mercury plans to enter the telecommunications market through its latest acquisition.

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Mercury NZ Ltd (ASX: MCY) shares are edging lower in morning trade after the company released news of an acquisition. At the time of writing, the Mercury share price is down 1.83% to $5.89. For context, the All Ordinaries Index (ASX: XAO) is also trading lower, currently down 1.81%.

The New Zealand energy provider advised today it has entered into binding agreements to acquire Trustpower Ltd‘s retail business.

Trustpower is an energy and telecommunications company based in New Zealand and listed on the New Zealand stock exchange.

Let’s take a closer look at today’s news from Mercury.

Proposed acquisition

According to Mercury’s release, Trustpower’s retail business provides electricity, gas, fixed and wireless broadband, and mobile phone services to around 231,000 New Zealanders.

At 52%, more than half of Trustpower’s customers use two or more of the company’s services.

Once combined, Mercury and Trustpower would hold around 780,000 connections, spanning both power and telco services.  

According to Mercury, Trustpower will bring in earnings before interest, tax, depreciation, amortisation, and foreign currency (EBITDAF) of $55 million annually and provide $35 million of cost synergies across both businesses.

Mercury intends to pay NZ$441 million in cash to acquire Trustpower.

However, before the acquisition goes ahead, several conditions must be met.

Firstly, Mercury must obtain clearance from New Zealand’s Commerce Commission. Some of the Commerce Commission’s responsibilities including enforcing fair trading and competition, and regulating the nation’s energy and telecommunications sectors.

Additionally, Trustpower’s shareholders must approve the acquisition.

Mercury also requires the Tauranga Energy Consumer Trust (TECT) to complete its proposed restructure before it will finalise the acquisition.

The TECT was established in 1992 after substantial reform of New Zealand’s electricity market. The community-owned TECT now holds 26% of Trustpower’s shares.

Mercury expects all of these conditions to be met and the acquisition finalised by the end of the year.

Despite the seemingly positive news, investors are driving the Mercury share price lower on Monday, roughly in line with the wider market.

Commentary from management

Mercury chief executive Vince Hawksworth commented on the acquisition:

Mercury and Trustpower are two highly complementary organisations, and this agreement would see the best of both being brought together for our customers.

We know customers value the convenience and ease of bundled services in their home and Trustpower has deep expertise in bundling products in a way that people clearly appreciate…

Customers will continue to enjoy all the great services and support they have today with Trustpower and with Mercury. And we’re looking forward to unlocking even more benefits and products for them over time.

Mercury share price snapshot

The energy company has not been having the best year so far on the ASX, with the Mercury share price falling 6.06% year to date. However, Mercury shares have gained around 27% since this time last year.

The company has a market capitalisation of around $8 billion, with approximately 1.3 billion shares outstanding.

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