Centrica's acquisition of NewPower delivers further growth in key US states

Centrica announced today that it has signed an agreement to acquire NewPower Holdings, Inc. (NewPower) through a tender offer for all of NewPower’s outstanding shares, for $1.05 per share in cash which in total amounts to approximately $130 million (£87 million), subject to adjustment as explained below.  The acquisition is expected to add approximately 650,000 customers to Centrica’s North American customer base.

NewPower is the leading retailer of gas and electricity in deregulated U.S. markets, serving residential and small business customers in states including Georgia, New Jersey, Ohio, Pennsylvania and Texas.

This acquisition, which is a further key step in Centrica’s North American strategy, follows the January 28th announcement that Centrica has agreed to acquire Enbridge Services Inc. with 1.3 million home and business services customers in Canada.  After both transactions are completed, and after the Ontario electricity market opens as scheduled in May, Centrica will have around 4.3 million customer relationships with North American households.

The combined business provides a strengthened platform for further growth in Centrica’s key target markets, including Texas, Michigan, Ohio and Georgia and significantly enhances Centrica’s market analysis and entry capabilities in other U.S. states.  Centrica’s focus on the provision of excellent value and service to its customers will also be further supported by its position as the leading energy retailer in deregulated North American markets.

Centrica’s Chief Executive, Roy Gardner, said: “We are very pleased to have reached this agreement with NewPower, which helps us achieve critical mass in our target markets in the U.S.  This is a tremendous opportunity to combine our sales and marketing skills with the expertise that NewPower brings and we believe there are significant operational and cost synergies to be gained.  This transaction, together with our agreement to acquire Enbridge Services Inc in Canada and the business of Enron Direct Limited in the UK, demonstrates Centrica’s ability to leverage its considerable financial strengths to gain market leadership and seize profitable growth opportunities as they arise.”

NewPower reported revenues of $369.9 million and net losses of $212.8 million before non-recurring items for the year ended December 31, 2001 and net assets of $246 million as at December 31, 2001.  NewPower’s net losses in part reflect the early stage of its business development, as operating expenses and infrastructure investments have substantially exceeded gross profits.  NewPower’s performance was also adversely affected in 2001 by operational and switching delays in the Texas market which, combined with volatile energy trading conditions left NewPower with commitments to purchase commodity at prices well in excess of subsequent market levels.  The volatility also reduced the credit available to NewPower in the market. 

NewPower’s key strengths include its marketing, customer billing and care operations and its strong regulatory relationships in key markets.

As part of Centrica, the profitability of the NewPower business is expected to improve due to energy market volatility risk mitigation measures to be undertaken by Centrica, substantially reduced infrastructure investment, a focus on profitable customer relationships and the realisation of synergies believed by Centrica’s management to be in excess of $25 million per annum.  Centrica expects the acquisition to be slightly dilutive to EPS and cash flow in 2002 and 2003 and to contribute to EPS and cash flow in 2004. 

NewPower Chairman and Chief Executive Officer, H. Eugene Lockhart, said: “NewPower was formed to capitalise on the long-term opportunity presented by energy deregulation in the U.S., and we have made great strides in doing so.  We are delighted that Centrica recognizes the market potential which we can now pursue together to serve our customers from a position of far greater stability and financial strength.”

Centrica expects to commence a tender offer within one week to acquire all of the outstanding shares of NewPower. The boards of directors of both Centrica and NewPower have approved the transaction.  Centrica has more than 50% of the fully diluted shares of NewPower committed to acceptance under contractually binding Stockholders’ Agreements but, in the case of the Enron interests, this is subject to bankruptcy court approval.

The transaction is also subject to customary conditions, including with respect to the Hart Scott Rodino Anti-Trust Act, approvals by the Federal Energy Regulatory Commission and certain other regulatory agencies, and approval of the bankruptcy court overseeing Enron’s Chapter 11 bankruptcy proceedings of the settlement of certain liabilities between NewPower and Enron, the termination of inter company agreements and the issuance of an injunction restraining third parties from making claims against New Power in respect of Enron-related liabilities.

The price per share that will ultimately be paid to NewPower shareholders is subject to a price adjustment mechanism based on changes in the projected forward price curves for electricity and gas between the signing of the merger agreement and the date upon which the tender offer price is fixed, in order to offset any changes in the value of NewPower’s commodity position.  Following such price adjustment, if the calculated price falls outside the range $0.80 to $1.30 per share, then Centrica and NewPower have certain predefined rights not to complete the transaction.  In addition to the equity consideration described above, Centrica and NewPower will also pay transaction costs of $13 million and other related costs totalling approximately $65 million as described below.  These costs are expected to be largely offset by the anticipated restricted and unrestricted cash balances that will be held by NewPower on completion of the transaction.