Last Friday, Centrica’s (LSE: CNA) (NASDAQOTH: CPYYY.US) shares jumped, as rumours started to fly around the City that Qatar was about to make a bid for the company.
These rumours stemmed from a report published within the Daily Mail, which suggested that some Qatari investors had approached Centrica’s largest shareholders offering to buy large quantities of stock ahead of a full takeover.
Centrica declined to comment on the speculation, but investors did not have to wait long for more details to come out.
Management in talks
On Friday afternoon, after takeover rumours started to swirl, Qatar’s energy minister Mohammed bin Saleh Al-Sada and Centrica’s chief executive Sam Laidlaw both spoke at an event in London, giving analysts a chance to press for more information.
However, once again both parties declined to comment on bid rumours but Al-Sada did reveal that the two parties were in talks.
After pressing for more information, it was revealed that Qatar and Centrica were “discussing some projects” after the two parties found they had a lot of common values.
It is believed that Qatar will make a bid for three of Centrica’s gas-fired power plants, recently put up for sale by the company. Qatar’s access to cheap gas will allow it to run these plants at a lower cost than other providers.
Still, Centrica is not giving up on all of its gas-fired plants — the company plans to spend £150m in upgrading older, smaller gas plants. It also has an option to build a new gas plant at Kings Lynn, but has said this is several years off.
A history of working together
Centrica and Qatar have a history of working together, so, if the two entities were to merge then there would be plenty of benefits to be gained from the deal.
For example, Centrica signed a co-operation agreement with Qatar Petroleum International in 2011, focused on projects in North America. The agreement allows the two parties to share information and co-operate on the development of oil and gas projects within North America.
Further, Centrica inked a £4.4bn liquefied natural gas supply deal with Qatargas last year. This deal allowed Centrica to purchase LNG, equivalent to around 13% of the UK’s annual household demand, for five years at an attractive price from Qatar.
Based on these existing cooperation agreements, City analysts at UBS have summed up the deal speculation:
“…Given the strengthening relationship between Centrica and Qatar… we see merit in the speculation that Qatar could be interested in either taking over Centrica or else at least building a strategic cornerstone holding…”
What’s more, Centrica is currently in the perfect position to be taken over as the company is in disarray. Indeed, much of the group’s management team has run for the exit in recent weeks and there is still plenty of uncertainty surrounding the government’s plans for the UK energy industry.
So, it seems as if now is the perfect time for Centrica to be taken over, although nothing is set in stone yet.
