Shell to enter Australian electricity market as ERM shareholders agree to sell

Global energy giant Shell is set to emerge as a new player in the Australian electricity market after shareholders in energy company ERM Power overwhelmingly approved a takeover offer from the company.

In August, ERM Power announced that it had received an offer from Shell to acquire the company in a deal worth A$617 million. The takeover offer was unanimously supported by the ERM board, which said the deal represented good value for shareholders.

ERM Power is one of Australia’s largest electricity retailers, with a dedicated business in providing electricity supplies to commercial and industrial customers. While ERM does not offer services to residential customers, it currently sits amongst the top five largest electricity retailers by volume of sales.

ERM also owns interests in two gas-fired generators located in Queensland and Western Australia.

Shell Energy Australia offered to purchase the ASX-listed ERM Power at $2.42 per share, which is a substantial premium to the price, ERM shares were trading prior to the offer, at around $1.70.

ERM shareholders will receive a special dividend of 8.5 cents per share upon the sale of the company, with the remaining consideration paid through the purchase of outstanding shares at $2.335.

It’s a fascinating development in the Australian energy market, represents a key move by a global energy company that has predominantly focused its business on the oil and gas sectors. Shell has committed to investing US$2 billion a year in building its presence in the electricity sector, including in technologies and projects that generate clean electricity as part of its ‘New Energies’ initiative.

The acquisition of an electricity retailer by Shell highlights underpins the rapid shift towards the electrification of energy use, particularly with the emergence of electric vehicles. It follows Shell’s acquisition of German battery manufacturer Sonnen earlier this year.

In anticipation of a disruption to the global energy system, also driven by the emergence of affordable sources of renewable electricity, Shell has expanded its operations into the electricity sector and has already made similar acquisitions in Europe and Northern America.

“This acquisition aligns with Shell’s global ambition to expand our integrated power business and builds on Shell Energy Australia’s existing gas marketing and trading capability,” Shell Australia’s country chair Zoe Yujnovich said at the time the offer was announced.

“ERM will become our core power and energy solutions platform and this acquisition is a significant step forward in growing Shell’s integrated power business in Australia. Upon completion, we look forward to welcoming ERM’s staff and customers to Shell.”

The takeover of ERM Power is a significant windfall for founder Trevor St Baker, who owns a 27.4% stake in ERM Power, worth approximately $170 million under the takeover offer.

The deal adds to St Baker’s rapidly growing net worth after the businessman benefited from the sale of the NSW government of the Vales Point power station for $1 million. St Baker led the consortium that purchased Vales Point, with the power station now valued at over $700 million.

The takeover remains subject to approval by the Supreme Court of New South Wales, which must approve the sale under the Corporations Act, but company directors expect this approval to be granted as early as next week.