ERM Power Limited today announced it has entered into a scheme implementation deed with Shell Energy Australia Pty Ltd under which Shell Energy Australia proposes to acquire 100% of the share capital of Australian-based ERM Power for a cash price of $2.4654 per share (all $ Australian), by way of a scheme of arrangement ('Scheme').

The scheme consideration of $2.4656 per share values ERM Power’s equity at approximately $617 million and represents a 38.4% premium to the 1-month volume weighted average price (VWAP) of an ERM Power share to 21 August 2019 of $1.78.

ERM Power is the second largest electricity retailer to commercial and industrial customers in Australia

"Our strategy across electricity supply and demand aligns well with Shell’s global electrification and energy solutions ambitions," ERM said

"This is a strong demonstration of the success of our strategy, the capability of our people and our ability to grow a generation, retailing and energy solutions business that supports the transition to renewables. Shell’s considerable resources and reach would accelerate the opportunity and potential within ERM Power’s operations," ERM said

Shell Australia’s Country Chair Zoe Yujnovich, said: "This acquisition aligns with Shell’s global ambition to expand our integrated power business and builds on Shell Energy Australia’s existing gas marketing and trading capability. ERM will become our core power and energy solutions platform and this acquisition is a significant step forward in growing Shell’s integrated power business in Australia. Upon implementation, we look forward to welcoming ERM’s staff and customers to Shell."

The ERM Board has today (with the FY2019 full year results) declared a fully franked ordinary dividend of $0.045 per share (Ordinary Dividend), which will be paid on 9 October 2019.

In addition, the Board currently intends to declare and pay a special dividend of up to $0.085 per share prior to implementation of the Scheme (Special Dividend) if the Scheme is approved by ERM Power shareholders and the Court. The Board’s final decision in relation to the declaration and payment of the Special Dividend will depend upon a number of factors, including the availability of franking credits, the requirements under the Corporations Act 2001 (Cth) and ERM Power having received a favourable draft class ruling from the Australian Taxation Office.

The Ordinary Dividend and the Special Dividend (if paid), will reduce the scheme consideration by an equivalent amount. The franking credits attached to these dividends are potentially worth up to approximately $0.055 per share (for those shareholders who are able to realise the full benefit of franking credits). The scheme consideration will not be reduced by the value of the franking credits

The directors of ERM Power unanimously recommend that ERM Power shareholders vote in favour of the Scheme in the absence of a Superior Proposal and subject to the independent expert concluding in its independent expert’s report (and continuing to conclude) that the Scheme is in the best interests of ERM Power shareholders.

Subject to those same qualifications, all directors of ERM Power, who collectively have a relevant interest in approximately 3.2% of the total number of ERM Power shares on issue, intend to vote or procure the vote of those shares in favour of the Scheme.

ERM said that, "Given the relationship between Mr Trevor St Baker and Mr Philip St Baker, it was considered appropriate for the board of directors of ERM Power ('Board') to form an independent board committee of all the other directors of the Board, to consider the proposal. The independent board committee recommended to the Board that they approve entry by ERM Power into the scheme implementation deed."

Under the scheme implementation deed, ERM Power is bound by customary exclusivity provisions including 'no shop', 'no talk', 'notification of approaches' and 'matching rights' obligations. The 'no talk' restriction is subject to a customary fiduciary carve-out

The transaction remains subject to shareholder approval. Mr Trevor St Baker, who currently has a relevant interest in 68,554,916 ERM Power shares (representing approximately 27.39% of the total number of ERM Power shares on issue), has confirmed to the directors of ERM Power that he intends to vote, or procure the vote of, those shares in favour of the scheme of arrangement, in the absence of a superior proposal to acquire all of the ERM Power shares and subject to the independent expert concluding (and continuing to conclude) that the scheme of arrangement is in the best interests of ERM Power shareholders