LONDON  - Royal Dutch Shell has had its pocket picked in its own back yard. Mitsubishi Corp and fellow Japanese group Chubu Electric Power on Monday succeeded in a 4.1 billion euro bid for Dutch utility Eneco, beating competing offers from the Anglo-Dutch oil group and buyout shop KKR. It underlines the tricky nature of the pivot Shell is attempting to perform.

The crude producer’s strategy looked solid. As one of the few international oil companies making meaningful steps towards a low carbon future, acquiring an energy retail business with 2 million customers plus renewables generation capacity was appealing. Teaming up with Dutch pension fund PGGM gave its bid extra firepower and political kudos, as the 44 Dutch municipalities that are selling Eneco looked more likely to favour a local buyer. That may be one reason France’s Total dropped out of the auction.

The municipalities obviously weren’t that home-obsessed. Mitsubishi’s success was fuelled by its pledge to maintain the current strategy, but a price tag ahead of the 3.5 billion euros cited in reports earlier this year helped. Still, that price represents about eight times the annualised 273 million euros of EBITDA recorded by Eneco in the first half of 2019 - below the double-digit multiple paid last year by Total for fellow utility Direct Energie. If it had really wanted to, the $231 billion Shell could have blown the $40 billion Japanese conglomerate out of the water.

Two related factors help explain why it didn’t. One is the potential low return. Unless Mitsubishi can magic up synergies from somewhere, its return on invested capital is below 4%, according to Breakingviews calculations. That’s probably easier to swallow for Japanese investors, who are used to years of record low interest rates.

It’s a tougher call for Shell. Oil investors are more worried about their company wasting their money on renewables, as has happened before. Wind generation and utility returns are typically less than 10%, far below the 15% or more recorded by crude projects. Until investors start to seriously fret about climate change, their short-termism will act as a brake on the speed of Shell’s revamp.

 

CONTEXT NEWS

- A group led by Japan's Mitsubishi Corp will buy Eneco in a deal valuing the Dutch energy firm at 4.1 billion euros, the companies said on Nov. 25. The Mitsubishi consortium beat rival bids from Royal Dutch Shell and private equity firm KKR.

- Eneco, a company owned by 44 Dutch municipalities and with a focus on renewable energy, said it had been swayed by Mitsubishi's plans to allow the company to continue its current strategy and retain its corporate identity.

- Eneco said Mitsubishi's group, which also includes Japanese energy company Chubu Electric Power, had "made the best offer for shareholders and all other stakeholders of Eneco, including employees."

 

(Editing by Neil Unmack and Oliver Taslic) ((george.hay@thomsonreuters.com; Reuters Messaging: george.hay.thomsonreuters.com@reuters.net Christopher.G.Thompson@thomsonreuters.com; Reuters Messaging: Christopher.G.Thompson.thomsonreuters.com@reuters.net))