Centrica to Buy Hess Marketing Unit for $731 Million

Centrica Plc agreed to buy Hess Corp.’s energy marketing unit, which sells power and natural gas to 23,000 customers, for $731 million in cash as part of a plan to double profitability in North America within five years.

Centrica’s North American subsidiary, Direct Energy Business LLC, will also pay net working capital of about $300 million, the Windsor, England-based company said today in a statement. The transaction is expected to close in the fourth quarter, New York-based Hess said in a separate statement.

Hess has been selling assets to focus on exploring and producing oil and natural gas while Centrica has been acquiring businesses to fuel its North American expansion. The British company teamed up with Qatar Petroleum to buy gas fields from Canada’s Suncor Energy Inc. in April for C$1 billion ($973.6 million) and signed a 20-year contract with Cheniere Energy Inc. to export the fuel from the U.S.

“The addition of the Hess business dramatically increases the scale of our activities,” Maura Clark, president of Direct Energy Business, said in the statement. The acquisition will make Direct Energy the largest gas supplier to businesses on the U.S. East Coast and add to profit in the first full year of ownership, according to the statement.

Centrica Chief Executive Officer Sam Laidlaw worked for Hess for 20 years, including serving as the company’s chief operating officer from 1995 to 2001. Centrica rose 2.1 percent to 385.8 pence at the close in London. Hess, which said it will use the funds to help pay for an already announced share buyback, gained 1.6 percent to $73.19 at the close in New York.

Hess Divesting

Hess’s energy marketing business supplied 378 billion cubic feet of gas and 28 terawatt-hours of electricity to customers in 18 eastern U.S. states last year, according to Centrica. Customers of the unit include Yankee Stadium, according to the baseball team’s website.

The unit had sales of more than $6 billion last year and is forecast to have about $200 million of earnings before interest, taxes, depreciation and amortization this year.

Hess is seeking to transform itself into a pure exploration and production company, with plans to shut or sell its refineries, terminals and gasoline stations. Today’s sale, including the working capital, brings year-to-date divestitures to $4.5 billion and puts the company in position to begin the planned $4 billion share repurchase announced in March.

Proxy Fight

The deal doesn’t include Hess’s stake in Hetco, an energy-trading venture with offices in New York, London, Dubai, Geneva, Singapore, Houston and Boston, Jon Pepper, a company spokesman, said in an e-mail. Hess intends to divest that separately, he said.

Hess ended a proxy fight in May with Paul Singer’s Elliott Management Corp., replacing nine of 14 board members. The new directors include three nominated by Elliott, which has pressed the company to focus on exploration and production and sell or spin off assets.

Centrica is scheduled to publish first-half results tomorrow. Hess is scheduled to report second-quarter results tomorrow.