Drax is pleased to announce that it has signed an agreement (the “Acquisition Agreement”) with Pinnacle Renewable Energy Inc. (PL.TO) (“Pinnacle”), providing for the acquisition by Drax Canadian Holdings Inc., an indirect, wholly-owned subsidiary of Drax, of the entire issued share capital of Pinnacle (the “Acquisition”).
The Acquisition will be implemented by way of a statutory plan of arrangement in accordance with the laws of the Province of British Columbia, Canada, at a price of C$11.30 per share (representing a premium of 13% based on the closing market price as at 5 February of C$10.04 per share and valuing the fully diluted equity of Pinnacle at C$385 million (£226 million(1)), with an implied enterprise value of C$741 million, including C$356 million of net debt(2)).
The Acquisition, which remains subject to Drax and Pinnacle shareholder approval, court approval, regulatory approvals and the satisfaction of certain other customary conditions, has been unanimously recommended by the board of Pinnacle and has the full support of Pinnacle’s major shareholder, affiliates of ONCAP (which, together hold shares representing approximately 31% of Pinnacle’s shares as at 5 February 2021). Completion is expected to occur in the second or third quarter of 2021.
The Board believes that the Acquisition advances Drax’s biomass strategy by more than doubling its biomass production capacity, significantly reducing its cost of biomass production and adding a major biomass supply business underpinned by long-term contracts with high-quality Asian and European counterparties. The Acquisition positions Drax as the world’s leading sustainable biomass generation and supply business alongside the continued development of Drax’s ambition to be a carbon negative company by 2030, using Bioenergy Carbon Capture and Storage (BECCS).
- Compelling opportunity to advance Drax biomass strategy
- Adds 2.9 million tonnes of biomass production capacity
- Significantly reduces Drax average cost of production(3)
- Increased global reach and presence in third-party markets
- C$6.7 billion of contracted sales to counterparties in Asia and Europe
- 99% of capacity contracted through to 2026, significant volumes contracted post 2027
- Strong return on investment
- Cash generative with 2022 EBITDA consensus of C$99 million
- Expected returns significantly ahead of Drax’s WACC
- Funded from cash and existing agreements
- Reinforces sustainable and growing dividend
The world’s leading sustainable biomass generation and supply business
- Drax and Pinnacle combined
- 17 pellets plants, three major fibre baskets, four deep water ports
- 4.9Mt capacity from 2022 – 2.9Mt available for self-supply
- 2.6GW of renewable biomass generation, with potential for BECCS
- Global growth opportunities for sustainable biomass
Commenting on today’s announcement Will Gardiner, Chief Executive Officer of Drax, said:
“I am excited about this deal which positions Drax as the world’s leading sustainable biomass generation and supply business, progressing our strategy to increase our self-supply, reduce our biomass production cost and create a long-term future for sustainable biomass.
“We expect to benefit greatly from Pinnacle’s operational and commercial expertise, and I am looking forward to what we can achieve together.
“It will pave the way for our plans to use Bioenergy with Carbon Capture and Storage (BECCS), and become a carbon negative company by 2030 – permanently removing millions of tonnes of carbon dioxide from the atmosphere each year. Negative emissions from BECCS are vital if we are to address the global climate emergency whilst also providing renewable electricity needed in a net zero economy, supporting jobs and clean growth in a post-COVID recovery.”
Photo: Drax Group CEO Will Gardiner in the control room at Drax Power Station