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AGL Energy Agrees to Acquire Power Plants for A$1.51 Billion

AGL Energy Ltd. (AGK), Australia’s second-biggest electricity retailer, agreed to buy New South Wales state-owned power plants for A$1.51 billion ($1.37 billion), setting up a clash with the competition regulator.

The purchase of Macquarie Generation depends on approval by the Australian Competition & Consumer Commission, the Sydney-based company said today in a statement. The regulator, which said last week an acquisition by AGL would likely reduce retail market competition, is expected to decide by March 4.

Buying Macquarie Generation’s two coal-fired power plants, which account for more than a quarter of electricity capacity in Australia’s most-populous state, will increase AGL’s share of the national market to 21 percent from about 12 percent. It would also make AGL the largest generator in New South Wales, Victoria and South Australia, the ACCC said last week.

“AGL believes there is a strong factual basis to demonstrate that the acquisition of Macgen will not result in a substantial lessening of competition,” the company said in the statement today. AGL believes its response to the regulator will address the concerns, according to the statement.

The company will fund the deal through a A$1.2 billion share sale to existing holders and A$350 million of bank debt. The government will use proceeds from the sale, which includes the Liddell and Bayswater power plants and two development sites, to finance road, school and hospital projects across the state, Treasurer Mike Baird said today in a statement.

Exceeded Value

AGL’s bid was the only offer that exceeded the value of the assets if they were to remain in government hands, Baird said today in an e-mailed statement. The government expects to complete the deal by mid-April, should the competition regulator approve the purchase, he said.

The retailer may need to offer to sell the Liddell power station to gain regulatory approval, according to a Commonwealth Bank of Australia report earlier this month.

Shares in the company rose 3.2 percent to A$15.66 in Sydney trading, the most in almost six months, while Australia’s benchmark index climbed 1.1 percent.

ERM Power Ltd. (EPW) and Marubeni Corp. (8002) also made bids for Macquarie Generation, three people with knowledge of the matter said earlier this month.

If the deal is completed, AGL, Origin Energy Ltd. (ORG) and EnergyAustralia Holdings Ltd. would have as much as 80 percent of electricity generation capacity and more than 85 percent of the retail market in the state, the ACCC said last week.

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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