Australia's AGL Energy said yesterday it had made a preliminary merger approach to Origin Energy, paving the way for a A$14 billion (US$11.2 billion) deal that would create the country's largest gas and electricity supplier.
AGL said that negotiations had been underway for some months examining the possibility of a "nil premium scrip merger" with Origin, meaning neither party would have to pay a share price premium if the deal went ahead.
AGL chief executive Paul Anthony said analysis had shown "a compelling case to merge due to the complementary business profiles of each entity. Combining the two businesses would unlock significant economic and financial benefits," he said.
"It would advance the monetization of Origin's gas reserves, reduce the requirement for AGL to acquire gas reserves and allow for a significant reduction in duplicated operating costs," Anthony said.
He acknowledged that the merger would raise concerns with the competition watchdog, the Australian Competition and Consumer Commission (ACCC).
"We have been giving considerable thought to addressing matters relevant to the ACCC and are working on proposals that are designed to provide acceptable solutions to the commission," he said.
Origin Energy said in a statement that the approach from AGL was unsolicited.
Origin said it was not currently in any negotiations with AGL and it would take no further steps on the potential deal until it has completed an evaluation.
"The company will advise the market if a decision should be taken to proceed," it said.
AGL last year completed a A$6.45 billion deal with Alinta that gave it control of the Perth-based utility's electricity retail operations.
The Australian Financial Review said an AGL-Origin merger would create a combined entity with more than six million customers, a controlling interest in New Zealand's largest energy producer and provider, as well as power plants and oil and gas fields across Australia.
The newspaper said the merged entity would also have a 49 percent share of the retail market on Australia's east coast.
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