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

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

| More on:
telstra share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Energy Shares

A bearded man holds both arms up diagonally and points with his index fingers to the sky with a thrilled look on his face over these rising Tassal share price
Energy Shares

Why is the Beach Energy share price racing higher on Thursday?

This energy producer delivered some big news this afternoon.

Read more »

A person is weighed down by a huge stack of coins, they have received a big dividend payout.
Energy Shares

Own Ampol shares? Get ready for your monster dividend payment

Ampol investors are about to enjoy their largest-ever dividend.

Read more »

A man sees some good news on his phone and gives a little cheer.
Energy Shares

Buy Woodside shares for a 20% gain and 4.5% dividend yield

Morgans thinks investors could get big returns from this energy giant.

Read more »

Woman holding $50 notes and smiling.
Dividend Investing

A 36% yield from this ASX dividend share? Here's how these forward-looking investors made it happen

Some savvy passive income investors are earning a 36% yield from this ASX dividend star.

Read more »

A Paladin Energy miner wearing a hard hat and protective gear stands in front of a large mining truck and smiles to the camera.
Energy Shares

Uranium is set to boom, and this is the 'premium' ASX stock to buy

Shaw and Partners' Jed Richards reckons these are the shares to buy for the nuclear energy theme.

Read more »

Happy coal miner.
Energy Shares

How these ASX 200 energy shares could unexpectedly burn brighter

ASX 200 energy shares are facing rising global demand for their products.

Read more »

Worker inspecting oil and gas pipeline.
Energy Shares

ASX energy shares losing charge amid fresh warnings of gas supply shortfalls

Many energy commodity prices fell overnight and this is hitting ASX energy shares today.

Read more »

A miner stands in front oh an excavator at a mine site
Energy Shares

'We have reached a bottom': 5 ASX uranium shares leaping higher this week

ASX uranium stocks have enjoyed explosive share price growth over the past year.

Read more »