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The Deal: Centrica Ups Ante With Purchase From Hess

Tickers in this article: HES

LONDON (The Deal) -- Britain's Centrica's steady expansion into U.S. energy retailing leaped from incremental to transformational on Tuesday, July 30, with the announcement of a $731 million deal for the energy marketing unit of Hess .

The deal values the Woodbridge, N.J.-based operation at 3.65 times forecast Ebitda of $200 million for 2013 and will include an additional $300 million in working capital to be injected by Centrica after the closing.

"It marks a significant step towards delivering on our strategy of substantially increasing the scale of our North American downstream business," said Centrica CEO Sam Laidlaw. Centrica wants to double "the profitability of our North American downstream business over the next 3-5 years."

For Hess, the sale partly delivers on a March promise to exit its retail and gas trading operations to focus on exploration and production. The New York-based company, which has been under pressure from activist hedge fund Elliot Management LP, earlier this year appointed Goldman Sachs to find a buyer for the energy marketing unit as well as gas station operations, Indonesian and Thai assets and its Bakken midstream assets. >P/>Centrica will add energy marketing to its U.S. retail operation, Direct Energy, doubling the unit's Ebitda to about $400 million and adding sales of about $6 billion across 18 states. Direct Energy had sales of $4 billion in 2012. The acquisition will make Direct Energy the largest business gas supplier on the East Coast and the second-largest business power supplier in the U.S. retail market.

The Hess energy marketing unit shipped 378 billion cubic feet of gas and 28 terawatt hours of electricity in 2012, while Direct Energy sold 77 billion cubic feet of gas and 51 terawatt hours of electricity.

Centrica, which operates in the U.K. as British Gas and Scottish Gas, has been a regular buyer of U.S. energy retail assets but had, until now, limited itself to smaller bolt on-deals. In July, it paid $46 million for privately held electricity retailer Bounce Energy Inc., and a year earlier spent $110 million on two U.S. energy retailers owned by Spain's Iberdrola SA.

A Centrica spokeswoman declined to say how the deal would be financed or name advisers. The deal is expected to close before the end of the year.

--Written by Paul Whitfield