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France: European Power Market Total Prepares for Electric Transition

Editor: Alexander Stark

In a step to shift its power business toward cleaner energy, Total SA agreed to buy Paris-based utility Direct Energie, adding 2.6 million electricity and gas customers in France and Belgium.

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Total SA agreed to buy Paris-based utility Direct Energie, adding 2.6 million electricity and gas customers in France and Belgium.
Total SA agreed to buy Paris-based utility Direct Energie, adding 2.6 million electricity and gas customers in France and Belgium.
(Source: Bloomberg Finance LP)

Paris/France (Bloomberg) — The deal puts Total in a stronger position to lure households away from market leaders Electricite de France SA and Engie SA, and follows a similar utility acquisition by Royal Dutch Shell Plc in December.

While Big Oil’s move into the regulated European power market may not seem a natural fit today, it makes sense for a future in which fossil fuels are no longer dominant in the energy mix and consumers want charging points alongside gasoline pumps at fueling stations.

Total will buy 74.3 % of Direct Energie from Impala SAS and other investors for € 42 a share, it said Wednesday. Following the $ 1.7 billion transaction, the company will offer to buy out minorities at the same cost per share, a 24 % premium to the three-month average stock price. The deal values Direct Energie at about 12.5 times projected 2018 earnings, Total said.

“The push to grow along the electricity value chain is in line with Total’s stated strategy, although we did not expect something this significant so soon,” said Biraj Borkhataria, an analyst at RBC Capital Markets. “It remains unclear what synergies the two portfolios could generate, but the headline acquisition multiple looks high versus utility peers.”

The deal, unanimously approved by Direct Energie’s board, is not Total’s first foray into the utilities business. It bought Belgian power retailer Lampiris SA for approx. $ 223 million in 2016, and took a minority stake in France’s Eren Renewable Energy SA last year to add wind, solar and hydropower assets.

Anglo-Dutch competitor Shell has also ventured into electricity supply, snapping up the UK’s First Utility Ltd. in December, while Italian oil giant Eni Spa has entered France’s gas and power retail market.

Total, which already has 1.5 million gas and power clients, aims to have more than 6 million in France and one million in Belgium by 2022. It’s also targeting capacity of ten gigawatts of gas-fired power plants and renewable electricity generation within five years.

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