UK Centrica Sells N American Business

UK utility Centrica has agreed to sell its North American energy supply, services and trading subsidiary Direct Energy to US NRG Energy for £3.625 ($4.14)bn in cash, or £2.85bn on a debt free, cash free basis, it said July 24.

The deal, which needs Centrica shareholders' approval and regulatory approval from North American anti-trust authorities, values Direct Energy at 7.9 times last year's underlying pre-tax earnings (Ebitda). It is expected to complete in the next quarter. The subsidiary contributed a quarter to Centrica's 2019 profits.

Centrica said the deal "materially" increased the long-term strength of its balance sheet. The cash will be used to reduce net debt significantly and make a material contribution to the group’s defined benefit pension schemes. The deal will also lead to "more predictable and stable cash flows from the remaining Group."

But the company is not going to pay dividends for the second year running as it copes with debt reduction, restructuring costs and the effects of the Covid-19 pandemic. It is making provision for 5,000 redundancies.

Following the restructuring plan announced in June the company will become "a leaner energy services and solutions company, focused on delivering for its customers and enabling the transition to a lower carbon future." 

CEO Chris O’Shea said the deal "provides Centrica with an opportunity to realise significant value for our shareholders at an attractive valuation.... Combined with our focus on completing our intended exits from Spirit Energy and Nuclear at the appropriate time, this is expected to lead to a more predictable and high-quality earnings stream moving forward."

He said that Centrica would now focus on its market-leading positions in UK and Ireland. "Alongside our recently announced organisational restructure, which puts the customer at the heart of everything we do and accelerates the delivery of targeted cost savings, this transaction is a fundamental step in the turnaround of Centrica and will leave us well placed to deliver for both customers and shareholders.”