AGL to buy MacGen for $1.5bn

Energy giant inks agreement to but Macquarie Generation, pending ACCC approval.

Energy heavyweight AGL Energy (AGK) has inked an agreement with the New South Wales government to buy its electricity generator Macquarie Generation for $1.505 billion, but the deal hinges on approval from the competition watchdog.

AGL, which has a market capitalisation of $8.5 billion, beat energy minnow ERM Power and Japanese power giant Marubeni for the prize, in a sales process run by Goldman Sachs.

In a statement to the ASX, AGL said MacGen would be immediately accretive to AGL’s underlying earnings per share in its first full year of ownership – fiscal 2015.

However, ACCC chairman Rod Sims has expressed “real concern” over AGL’s tilt for the assets.

Mr Sims has said he will attempt to make a final decision on an AGL acquisition before the watchdog’s slated deadline of March 4. 

Last week, Sims released a statement of issues last week outlining the watchdog’s concerns, saying an acquisition could see the energy heavyweight influence wholesale electricity prices across the eastern states.

AGL could not do anything to remedy the ACCC’s concerns, it was a matter of the watchdog “getting to the bottom of how big the concerns are”, Sims said. 

“There is real concern with this acquisition because then Origin, AGL and Energy Australia will be 70 to 80% of the generation market and 85% of the retail market,” Mr Sims told DataRoom last week. 

The acquisition of MacGen would make AGL the biggest generator in NSW, with 28% of the market, and they were already the dominant player in Victoria and South Australia, Sims said.  MacGen owns the Bayswater and Liddell power stations in NSW.

“They might be able to move the market on their own for wholesale prices,” Mr Sims said.

The ACCC has invited comments on the proposed acquisition by 27 February, and Sims says he wants to hear from second-tier retailers – who have already expressed concerns – and from major energy user groups.