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The share price of FTSE 250 member Telecom Plus (LSE:TEP) took off this morning like a rocket and has continued to climb at mid-day to 1747.0. That is nearly a 16% increase on the yesterday’s close of 1507.0. The intraday increase was powered by the TEP’s acquisition of Electricity Plus Supply Ltd and Gas Plus Supply Ltd, adding some 770,000 customers to TEP’s account base.
Telecom Plus operates commercially as Utility Warehouse. The £218 million deal is a wee bit complicated in that Utility Warehouse currently services the accounts added through the acquisition, but the accounts are “technically owned” by Electricity Plus and Gas Plus, subsidiaries of npower, the UK’s sixth largest utility company by customer. Given its current account base, the Telecom Plus will “more than double to 1.2 million” customers. Once the deal is approved by Telecom share holders and the Office of Fair Trading, Utility Warehouse will become the largest independent energy supplier in the UK, and the seventh largest overall.
Telecom Plus’ Executive Chairman, Charles Wigoder, called the acquisition, ” a transformational deal for the company,” He projected that the deal would result in “delivering significant earnings enhancement and the opportunity for us to provide even more competitive energy prices to our customers in future.”
CEO of RWE npower, Paul Massara, put the magnitude of the deal into perspective saying that “In one move we have helped to create the biggest independent competitor in Britain’s household energy supply market. Today’s announcement shows that Britain is well on the way to having a Big 7 rather than a Big 6.”
Investors are reacting positively, but the ultimate test may be what the customers think as they have been upset by recent price increases announced by the Big Six. Does this mean that they can expect that same from TEP and Utility Warehouse once the deal is complete and the new Big Seven emerges? Not according to TEP CEO Andrew Lindsay. He said “The anticipated acquisition of our own energy supply licences from npower enabled us to keep our recent price rises significantly below the average of those which had previously been announced by the Big Six.” That indicates what has happened. The question on the minds of consumers is: “Will the lower rates continue?”
From the business and investment side of the coin, it looks like a good deal all the way around. I expect consumers to be just a tad bit skeptical for two reasons. First, because another potential behemoth is being created. Second, because the public rarely either understands or believes what utility companies say. Their perspective will surely be influenced to some extent when they understand that part of the deal is a 20-year supply agreement whereby TEP acquires its energy from npower.
No matter how you slice it, any deal that doubles the customer base and increases the market capitalization of a company like this one has, is truly transformational. Power it up and let’s see how it goes.
