AGL’s A$1.51 Billion Power-Plant Deal Blocked by Regulator

AGL Energy Ltd. (AGK)’s A$1.51 billion ($1.35 billion) deal to buy government-owned power plants in Australia’s most-populous state was blocked by the nation’s antitrust regulator on concern it would reduce competition.

Australia’s second-biggest electricity retailer is reviewing the ruling by the Australian Competition & Consumer Commission, Sydney-based AGL said today in a statement. The company may challenge the decision in federal court, according to Commonwealth Bank of Australia and RBC Capital Markets.

“A legal challenge is the likely scenario,” Paul Johnston, a Melbourne-based analyst at RBC, said today by phone. If the regulator’s decision stands, it “could be problematic for further consolidation,” he said.

Buying Macquarie Generation’s two coal-fired power plants, which account for more than a quarter of the electricity capacity in New South Wales, would have increased AGL’s share of the national market to 21 percent from 12 percent. The sales process is now on hold, Treasurer Mike Baird told reporters.

AGL won’t comment on speculation about potential legal action, Nicole Rizgalla, a Melbourne-based spokeswoman, said today by phone.

Approval “is likely to raise barriers to entry and expansion for other electricity retailers in NSW and therefore reduce competition,” the commission said in a separate statement, echoing comments it made last month.

AGL dropped 2.5 percent to A$15.05 in Sydney trading, trimming its gain for the year to 0.1 percent.

Other Bidders

ERM Power Ltd. (EPW) and Marubeni Corp. also bid for Macquarie Generation’s Liddell and Bayswater plants, three people with knowledge of the matter said last month. AGL’s offer was the only one that exceeded the assets’ value, Baird said at the time.

Approval would also have given AGL, Origin Energy Ltd. and EnergyAustralia Holdings Ltd. as much as 80 percent of electricity generation capacity and more than 85 percent of the retail market in New South Wales, the regulator had said.

The government had planned to use proceeds from the sale, which included two development sites, to finance road, school and hospital projects across the state, according to Baird.

“We’re doing everything possible to release capital to get on with infrastructure, but we’re not going to do it at any cost,” Baird told reporters today. “We’re not going to do it where assets are sold for less than they’re worth.”

State’s Options

The state will consider its options for Macquarie Generation, Baird said today. While the government would be keen to move forward with an alternative plan that satisfies the regulator, it will “take its time,” he said.

AGL owns power generation assets in Victoria and South Australia, operates renewable energy plants and runs a retail electricity business, according to its website.

EnergyAustralia, a unit of Hong Kong-based CLP Holdings Ltd., in July agreed to buy the Mount Piper and Wallerawang power stations from New South Wales. On July 1, Origin Energy agreed to buy power company Eraring Energy from the state.

Brisbane-based ERM Power is the fourth-largest supplier to the national electricity market, according to its website. It has developed six gas-fired power stations and holds stakes in two plants in Queensland and Western Australia states.

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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