The owner of British Gas is to offload its North American business in a £2.85 billion deal to shore up the embattled energy group’s finances.
Centrica, which had a market capitalisation of only £2.4 billion last night, said it had agreed the deal to sell Direct Energy to the American NRG Energy after it made a “highly compelling unsolicited offer”. Shares in the group surged by more than 30 per cent in initial trading and were up by about a fifth at 49p shortly before 9am.
The deal was unveiled as Centrica reported a 14 per cent fall in half-year adjusted operating profits, to £343 million, and warned of a highly uncertain outlook because of the coronavirus pandemic.
Chris O’Shea, Centrica’s new chief executive, said he was worried about the risk of customers falling into debt.
The company took a £220 million hit linked to Covid-19 in the first half, owing to a drop in energy usage by business customers, scaling back services activity and increased provision for bad debt. This was largely offset by £160 million of “mitigating actions” including cancelling all senior management bonuses and placing 3,800 employees on the UK government’s furlough scheme.
The results were issued to the stock market 20 minutes after the usual 7am release time as finalising the NRG announcement went “to the wire”.
British Gas is Britain’s biggest household energy supplier with about 7 million domestic customers as well as a home services arm and business supply operations.
Direct Energy supplies 3.3 million residential customers in North America, operating across all 50 US states and in one Canadian province. It also has about 160,000 business energy customers across 27 US states and 6 Canadian provinces, making it one of the largest commercial and industrial retail energy providers in North America.
Centrica said that the sale of Direct Energy should deliver net cash proceeds of £2.7 billion, enabling it to significantly reduce its net debt, which stands at £2.8 billion, and contribute materially to its pension scheme.
Mr O’Shea said the “super” deal was “a fundamental step in the turnaround of Centrica” and would leave it focused “on the UK and Ireland where we have leading market positions”.
NRG Energy is listed in New York and already has about 3.7 million customers as well as significant power plant assets.
Analysts welcomed the deal: Jefferies said the price was “at least £1 billion above our valuation”.
Centrica also owns a 20 per cent stake in Britain’s nuclear plants and co-owns a North Sea oil and gas business. It has been looking to offload both but sales processes have faltered amid safety outages at the reactors and the plunge in oil prices. Centrica said that it was still focused on completing the sales “at the appropriate time”.
On a statutory pre-tax basis Centrica reported a £264 million loss, compared with a £569 million loss the same period a year earlier.