ERM Power Limited [ASX:EPW] has risen over 40% recently.
The question you may now be asking is: Is ERM Power a stock you should be following?
First, let’s find out a bit more about this company…
Who is ERM Power?
ERM Power is an energy company that primarily sells to business customers. It operates in both Australia and the United States.
The company has been around for over 30 years, but only listed on the ASX in December 2010.
Today, it has a market cap of around $427 million. That puts it in small-cap territory compared to energy companies like Origin Energy or even AGL Energy.
Why did the ERM Power share price spike?
Let’s take a look…
A multimillion-dollar takeover offer
Royal Dutch Shell has attempted to crack the Australian power sector with a $617 million takeover offer directed at ERM Power.
Shell seems keen to get its hands on this company. It has offered an all-cash stake for ERM with a bid of $2.465 per share.
That’s a 43% increase on EPW’s last trading price — hence the recent spike.
It appears EPW’s management were stoked, as they’ve urged shareholders to accept this.
So, what is Shell up to and why is it trying to crack our energy sector?
Shell is already a major gas producer in Australia.
But clean energy conscious investors and consumers are moving from minority to majority.
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For a company like Shell to remain a powerhouse, it needs to shift its outlook.
Here is what Shell Australia Chairman Zoe Yujnovich had to say: ‘This acquisition aligns with Shell’s global ambition to expand our integrated power business and builds on Shell Energy Australia’s existing gas marketing and trading capability.’
With Australia at the core of Shell’s ‘emerging power’ business model, buying a company like EPW could be a smart move.
What’s next for ERM Power Shares?
I don’t think you should buy into EPW right now. I’d sit on the sidelines, and here’s why…
Companies that receive takeover bids typically tend to hover within a tight price range while the offer is open.
That’s unless a rival bid comes in — but it’s hard to gauge the odds of that happening.
As always, feel free to place the stock on your watch list. It’s possible this takeover offer is rejected and the stock returns to normal trading.
You could also consider other companies that operate in the same sector. The same trends behind this takeover offer could play out in other stocks.
This is not a recommendation to buy or sell EPW. It is an update only. I hope you found it useful.
Until next time,