Australia's second largest energy retailer AGL Energy is set to remove a rival in Australian Power & Gas (APG) by buying it for $103 million.
The offer is a friendly one, with APG recommending it to shareholders as it heads for an estimated full year $5 million loss under the strain of about $55 million in net debt.
AGL will boost its customer base by 10 per cent, or 354,000 customers mostly from Victoria and NSW.
While APG is a larger second-tier energy company, it has been vulnerable to high wholesale prices because it is a pure retailer, unlike the giants AGL and Origin Energy who make far more money through power generation.
Its likely acquisition will concern critics of Australia's energy policy, who point to a lack of competition and the market power of power generators causing high retail prices for ordinary Australian users.
AGL was telling analysts on Monday that the deal valued APG at $562 per customer in a $199 million deal including the $55 million net debt and other expenses to be paid with cash reserves and debt.
It pointed out that that was far less than the estimated $800 and $1000 a customer that rivals EnergyAustralia and Origin had paid during the NSW power privatisations in late 2010.
AGL has been fiercely trying to steal NSW customers ever since.
AGL managing director Michael Fraser said on Monday that the company would now effectively achieve its goal of 800,000 electricity customers in NSW.
Morningstar analyst Gareth James said it was arguable if the difference between what AGL and its rivals had paid to acquire NSW customers was as great as being claimed, but it was a good deal.
He described the potential takeover as more strategic than profit-driven, saying it would not increase earnings by much, at least in the short term.
"This is far better way to get hold of a large number of customers in one go than what the major retailers have been doing, which is to fight each other by dropping prices, calling their customer bases and doorknocking," he told AAP.
The acquisition is expected to deliver decent returns, with AGL taking a lot of the costs out of the business, he said.
AGL has offered 52 cents a share, representing a 33 per cent premium to APG's closing price of 39 cents on Friday.
APG's stocks had shot up 11.5 cents, or 29.49 per cent, to 50.5 cents by 1535 AEST, still below the offer price, while AGL's shares were 12.5 cents down at $14.975.
AGL said it had already struck agreements to buy 19.9 pent of the company from major shareholders including Nippon Gas and the Cobra Group.
It expects to complete the deal by October assuming an alternative offer does not emerge from a rival such as Origin and subject to 90 per cent acceptance.
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