Contact Energy is selling its Rockgas LPG business to gas network operator Gas Services NZ Midco for $260 million, which it will use to pay down debt.
The cash deal is expected to be completed by the end of this calendar year and will see Contact partner with GSNZ to enable it to continue to offer LPG to mass market customers, Contact said in a statement. Rockgas and Contact will cross-sell their respective LPG and electricity products and Contact will provide customer support services for an annual fee of $2 million.
Contact is New Zealand's largest electricity retailer and second-largest electricity generator, producing about a quarter of New Zealand's electricity from hydro, geothermal and gas-fired power stations. It bought the Rockgas business, which buys and distributes LPG, for $156 million in 2007 from its then majority shareholder Origin Energy. Contact said today the deal still enables it to offer LPG to customers and allows it to focus on its customer and generation businesses to deliver strong cash flows for distribution to shareholders.
"The Rockgas business is markedly different to the generation of electricity at single sites and the retailing of electricity, natural gas and broadband, which are distributed on networks not owned or controlled by Contact. Contact’s primary strategic interest in LPG is being able to offer the product as part of its energy offering to customers which is retained as part of the transaction," Contact said.
"Divesting Rockgas will enable greater focus and allow for accelerated transformation in the customer business, delivering digitally led customer experience improvements and ultimately creating value for shareholders."
Contact said the sale proceeds will strengthen its balance sheet, with its key debt ratio falling below its target, and facilitate improved distributions to shareholders.
The sale requires Overseas Investment Office approval as well as other changes to contract agreements.
Contact shares last traded at $5.72, having gained 2.9 percent so far this year.