Mercury (ASX:MCY) share price dips despite acquisition news

Mercury plans to enter the telecommunications market through its latest acquisition.

| More on:
telstra share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Mercury NZ Ltd (ASX: MCY) shares are edging lower in morning trade after the company released news of an acquisition. At the time of writing, the Mercury share price is down 1.83% to $5.89. For context, the All Ordinaries Index (ASX: XAO) is also trading lower, currently down 1.81%.

The New Zealand energy provider advised today it has entered into binding agreements to acquire Trustpower Ltd's retail business.

Trustpower is an energy and telecommunications company based in New Zealand and listed on the New Zealand stock exchange.

Let's take a closer look at today's news from Mercury.

Proposed acquisition

According to Mercury's release, Trustpower's retail business provides electricity, gas, fixed and wireless broadband, and mobile phone services to around 231,000 New Zealanders.

At 52%, more than half of Trustpower's customers use two or more of the company's services.

Once combined, Mercury and Trustpower would hold around 780,000 connections, spanning both power and telco services.  

According to Mercury, Trustpower will bring in earnings before interest, tax, depreciation, amortisation, and foreign currency (EBITDAF) of $55 million annually and provide $35 million of cost synergies across both businesses.

Mercury intends to pay NZ$441 million in cash to acquire Trustpower.

However, before the acquisition goes ahead, several conditions must be met.

Firstly, Mercury must obtain clearance from New Zealand's Commerce Commission. Some of the Commerce Commission's responsibilities including enforcing fair trading and competition, and regulating the nation's energy and telecommunications sectors.

Additionally, Trustpower's shareholders must approve the acquisition.

Mercury also requires the Tauranga Energy Consumer Trust (TECT) to complete its proposed restructure before it will finalise the acquisition.

The TECT was established in 1992 after substantial reform of New Zealand's electricity market. The community-owned TECT now holds 26% of Trustpower's shares.

Mercury expects all of these conditions to be met and the acquisition finalised by the end of the year.

Despite the seemingly positive news, investors are driving the Mercury share price lower on Monday, roughly in line with the wider market.

Commentary from management

Mercury chief executive Vince Hawksworth commented on the acquisition:

Mercury and Trustpower are two highly complementary organisations, and this agreement would see the best of both being brought together for our customers.

We know customers value the convenience and ease of bundled services in their home and Trustpower has deep expertise in bundling products in a way that people clearly appreciate…

Customers will continue to enjoy all the great services and support they have today with Trustpower and with Mercury. And we're looking forward to unlocking even more benefits and products for them over time.

Mercury share price snapshot

The energy company has not been having the best year so far on the ASX, with the Mercury share price falling 6.06% year to date. However, Mercury shares have gained around 27% since this time last year.

The company has a market capitalisation of around $8 billion, with approximately 1.3 billion shares outstanding.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Energy Shares

Oil worker using a smartphone in front of an oil rig.
Share Market News

ASX 200 up strongly while energy shares plummet on ceasefire news

ASX 200 energy shares are tumbling with Karoon Energy and Woodside Energy the biggest fallers.

Read more »

An oil worker assesses productivity at an oil rig as ASX 200 energy shares continue to rise.
Share Market News

ASX 200 energy shares lead for the second week as world awaits US decision on Iran

ASX energy shares lifted 5.31% while the ASX 200 fell 0.49% amid the US President contemplating strikes.

Read more »

Copal miner standing in front of coal.
Energy Shares

What happened to Coronado Global Resources shares on Friday?

The ASX coal miner announced new funding this week.

Read more »

Gas and oil worker working on pipeline equipment.
Energy Shares

The pros and cons of buying Woodside shares this month

Is this ASX energy share a great opportunity right now?

Read more »

A miner stands in front of an excavator at a mine site.
Energy Shares

What's happening with ASX uranium stocks amid Sprott doubling investment to $200M

ASX investors have witnessed share price gains of up to 30% for the largest uranium stocks this week.

Read more »

Workers inspecting a gas pipeline.
Energy Shares

Woodside signs deal to supply Malaysian company with gas for 15 years  

It’s been a good month for Woodside shareholders with the company’s stock gaining 17%.

Read more »

Excited couple celebrating success while looking at smartphone.
Energy Shares

This ASX 200 uranium stock is charging higher on big news

This uranium producer is delivering the goods. Let's see what it announced.

Read more »

A man looking at his laptop and thinking.
Energy Shares

What did Macquarie make of the Santos takeover offer?

Is this a good deal for shareholders? Let's find out.

Read more »