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Centrica’s shares soared more than 17% after it agreed to sell Direct Energy, its North American energy business, to NRG Energy for $ 3.6 billion in cash.
Houston-based Direct Energy provides electricity, natural gas, and home services to consumers and businesses in North America. It operates in all 50 US states and 6 Canadian provinces. The purchase of Direct Energy from NRG (ticker: NRG) is scheduled to close at the end of the year.
The news of the sale caused Centrica (CNA.UK) shares on the London Stock Exchange to gain £ 6.77 to £ 47.14 (one pound sterling is approximately $ 1.29). NRG shares added more than 1.1% on the New York Stock Exchange in trading on Friday morning.
The sale will create a slimmer Centrica, offering electricity and gas to businesses and consumers in the United Kingdom, Ireland and North America. Centrica also owns British Gas, Bord Gais Energy and Dyno Rod. The transaction will allow Centrica to focus on its main UK and Irish domestic markets, where it has leading market positions, according to a statement.
“This provision is aligned with our strategy to become a simpler and more agile business, and will also materially strengthen our balance sheet and eliminate a source of Group earnings volatility,” said Chris O’Shea, CEO of the Centrica group.
Centrica is looking to get rid of other businesses. The UK company said in a separate statement that it plans to restart the sale of Spirit Energy E&P “once the commodity and financial markets have settled.” Centrica also wants to offload its stake in the UK nuclear fleet, but said that is also on hiatus.
The Direct Energy sale follows Centrica’s announcement in June that it plans to cut more than 5,000 jobs in an organizational restructuring. Earlier this year, Centrica reported a pre-tax loss of £ 1.1 billion in 2019 due to the UK energy price cap and falling gasoline prices. The Covid-19 pandemic has exacerbated these problems, a spokeswoman said Friday.
NRG of Princeton, NJ provides electricity and natural gas to more than 3.7 million residential, small business, and commercial and industrial customers. A purchase from Direct Energy will expand its retail business, adding more than three million customers in 50 states and Canada. The Direct Energy acquisition is expected to yield $ 300 million in annual savings and add to free cash flow, according to a NRG statement.
The Direct Energy purchase follows NRG’s acquisition of $ 300 million of Stream Energy’s retail electricity and natural gas business in 2019.
Centrica’s Direct Energy sale is also the latest transaction in the energy sector. Earlier this week, Chevron (CVX) said it would buy Noble Energy, an oil and gas producer, for $ 13 billion.
Citi and Credit Suisse provided financial advice to NRG, while Latham & Watkins and Baker Botts served as legal advisers.
Write to Luisa Beltrán at [email protected]
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