UK energy company Drax has signed an agreement for its Canadian arm to acquire wood pellet manufacturer Pinnacle Renewable Energy.
The acquisition will be implemented by way of a statutory plan of arrangement in accordance with the laws of the Canadian province of British Columbia at a price of C$11.30 (€7.36) per share.
The price represents a premium of 13% based on the closing market price as at 5 February of C$10.04 per share and valuing the fully diluted equity of Pinnacle at C$385m, with an implied enterprise value of C$741m, including C$356m of net debt.
The acquisition, which remains subject to Drax and Pinnacle shareholder approval, court approval, regulatory approvals and the satisfaction of certain other customary conditions, has been unanimously recommended by the board of Pinnacle and has the full support of its major shareholder, affiliates of ONCAP.
Completion is expected to occur in the second or third quarter of 2021.
The Drax board said it believes the acquisition advances the company’s biomass strategy by more than doubling its biomass production capacity, significantly reducing its cost of biomass production and adding a major supply business underpinned by long-term contracts with high-quality Asian and European counterparties.
Drax said the deal would add 2.9 million tonnes of biomass production capacity, while Drax and Pinnacle combined would have 17 pellets plants, three major fibre baskets, and access to four deep water ports.
They would also have 4.9 million tonnes capacity from 2022 with 2.9 million tonnes available for self-supply, and 2.6GW of renewable biomass generation.
Dra chief executive Will Gardiner (pictured) said: “I am excited about this deal which positions Drax as the world’s leading sustainable biomass generation and supply business, progressing our strategy to increase self-supply, reduce our biomass production cost and create a long-term future for sustainable biomass.
“We expect to benefit greatly from Pinnacle’s operational and commercial expertise, and I am looking forward to what we can achieve together.
“It will pave the way for our plans to use bioenergy with carbon capture and storage (BECCS), and become a carbon negative company by 2030 – permanently removing millions of tonnes of carbon dioxide from the atmosphere each year.
“Negative emissions from BECCS are vital if we are to address the global climate emergency whilst also providing renewable electricity needed in a net zero economy, supporting jobs and clean growth in a post-COVID recovery.”
Pinnacle chief executive Duncan Davies said: “Pinnacle’s Board of Directors has unanimously determined that the transaction represents the best course of action for the company and its shareholders.
“On closing, the transaction will deliver immediate, significant and certain cash value to our shareholders.
“At the same time, the combination of Pinnacle and Drax will create a global leader in sustainable biomass with the vision, technical expertise and financial strength to help meet the growing demand for renewable energy products, which is exciting for our employees, customers and others around the world.”