Energean Oil & Gas Plc, an international oil and gas exploration and production company has agreed to buy the oil and gas business of Electricite de France SA’s Italian unit for as much as $850 million.

Électricité de France S.A, also known as EDF, is a French electric utility company largely owned by the state and they operate a diverse portfolio in all continents. While it generates most of its energy primarily from nuclear power, there are plans in France to shut down nuclear reactors to reduce dependence.

EDF has a programme to sell as much as $3billion of assets in 2019 and 2020, following 10 billion euros of divestments in the previous 4 years. Earlier this year, EDF sold its 25% stake in Swiss power producer Alpiq for about 489 million Swiss francs ($496 million).

This deal will substantially broaden the company’s geographic footprint, while expanding its production and revenue streams. Operational assets in countries such as Egypt, Italy, Algeria, the North Sea and Croatia will be acquired.  

Cons:
Moving away from its geography of expertise
Energean is currently focused on fields in Israel and Greece, and the acquisition is a costly move for a company of its size.
Need to raise funds
It plans to finance the transaction by selling $265 million of new shares and using a $600 million bridge loan. The firm has an EV of 1.7billion and a debt ratio of 13.

Pros:
Reducing risk while paying a good price
Energean is diversifying their existing production base at attractive multiples.

Closing Thoughts:
With interest rates expected to remain low, using debt to fund the acquisition would be ideal. Given EDF’s overall plans to divest and sell assets, Energean might be getting a good price for the assets it is purchasing, especially with the uncertainty in Europe.

Energean has only listed for around a year (11^th of March 2018) and the stock has seen substantial growth, from a listing of $437 and reaching around $990 this month. It is clear that the markets are happy with this move.

Energean Oil & Gas Plc is listed on the London Stock Exchange & the Tel Aviv Stock Exchange while EDF is listed on the Paris Stock Exchange.