France's Oil Major Is Getting Ready for an Electric Future

(Bloomberg) -- Total SA deepened its foray into power and gas retail, underlining a strategy shift among European oil majors as the global transition to cleaner energy gathers pace.

The French company agreed to buy Paris-based utility Direct Energie, adding 2.6 million electricity and gas customers at home and in Belgium. 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.

Big Oil’s move into the European power market shows the majors are preparing for a future in which fossil fuels are diminished in the energy mix and consumers demand charging points alongside gasoline pumps at fueling stations. For Total, it’s also part of a plan to add customers for its growing natural-gas production and to increase control of its distribution.

“We now have, among the European oil majors, an unexpected battle emerging for market share in western European gas and power,” said Rob West, an analyst at Redburn Europe Ltd. “It is fascinating.”

Total will buy 74.3% of Direct Energie from Impala SAS and other investors for 42 euros a share, it said Wednesday. Following the 1.4 billion-euro ($1.7 billion) transaction, Total will offer to buy out minorities at the same cost per share, a 24 percent 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 acquisition in the utilities business. It bought Belgian power retailer Lampiris SA in 2016, as well as French battery maker Saft Groupe SA, gaining storage systems for generators. Last year, Total agreed to buy liquefied natural gas assets from Engie SA, and took a minority stake in France’s Eren Renewable Energy SA.

Anglo-Dutch competitor Shell has also ventured into electricity supply, snapping up the U.K.’s First Utility Ltd. in December, while Italian oil giant Eni SpA has entered France’s gas and power retail market. Norway’s Statoil ASA has expanded in offshore wind in recent years.

Total, which already has 1.5 million gas and power clients, aims to have more than 6 million in France and 1 million in Belgium by 2022. It’s also targeting capacity of 10 gigawatts of gas-fired power plants and renewable electricity generation within five years.

©2018 Bloomberg L.P.

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