Diversified energy utility AGL appears set to win control of troubled electricity retailer Australian Power and Gas, with an agreed takeover bid at 52¢ a share, a 33 per cent premium to the share price.
Before the agreed offer, Australian Power shares were trading at 39¢, which valued the company at $75 million.
After the takeover was disclosed, Australian Power's shares rallied to a high of 51¢, failing to top the offer price, and closed at 50.5¢.
AGL has bought a 19.9 per cent stake and has made agreements which will lift to 57 per cent its stake in the company, if a higher offer does not eventuate.
With 350,000 customers, Australian Power ranked as one of the largest of the second-tier electricity and gas retailers, although weak underlying demand and high energy prices have combined to push the group into the red due to rising bad debt.
Australian Power recently flagged a year to June net loss of up to $5 million, and told shareholders the year ahead would be a time of consolidation as it sought to overcome its trading difficulties.
At least one small cap fund manager had bought heavily into Australian Power in recent months, valuing the company at more than 60¢ a share in a takeover.
AGL has been battling Origin Energy and EnergyAustralia to increase its share of energy markets.
AGL is expected to acquire power generation assets from the NSW government, with most interest centred on potential acquisition of coal power stations from Delta Electricity.
AGL managing director Michael Fraser said most Australian Power and Gas customers - 228,000 - are in Victoria, with about 100,000 in NSW and the rest in Queensland.
The bid was to be completed in October, he said, although this would depend on gaining the approval of the Australian Competition and Consumer Commission.
AGL estimates it has a $130 a customer cheaper service delivery advantage over Australian Power, he said.
Australian Power and AGL discussed a merger last year but it did not proceed due to differences over prices, he said, with negotiations resuming more recently.
Morningstar analyst Gareth James said AGL was paying an estimated $560 a customer - close to half the price paid by Origin and EnergyAustralia - when it bought the retail book from the NSW government three years ago. Since then, the power market has weakened which may also have weighed on valuations in the sector, he said.
The purchase lifts AGL's market share by 10 per cent.
"The alternative is organic growth which, in a mature market, means competing on price," Mr James said.