UK power utility Drax Group plc has announced that it has signed an Acquisition Agreement with Canada-headed wood pellet producer Pinnacle Renewable Energy Inc (Pinnacle), providing for the acquisition by Drax Canadian Holdings Inc., (Bidco) an indirect, wholly-owned subsidiary of Drax, of the entire issued share capital of Pinnacle. If approved, Drax Group will have access to 4.9 million tonnes of operational pellet production capacity from 2022 of which 2.9 million tonnes for self-supply.
According to a statement, the Acquisition Agreement was entered into on February 7, 2021, between Drax, Drax Canadian Holdings Inc., (Bidco), and Pinnacle. Pursuant to the Acquisition Agreement, Bidco has agreed to acquire all of the issued and outstanding shares in Pinnacle and, immediately following completion, anticipated to occur in the second or third quarter of 2021, Pinnacle will be an indirect wholly-owned subsidiary of Drax.
I am excited about this deal which positions Drax 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, said Will Gardiner, CEO of Drax.
The acquisition is planned to be implemented by way of a statutory plan of arrangement in accordance with the laws of the Province of British Columbia (BC), Canada, at a price of CA$11.30 per share (representing a premium of 13 percent based on the closing market price as at February 5, 2021, of CA$10.04 per share and valuing the fully diluted equity of Pinnacle at CA$385 million, with an implied enterprise value of CA$741 million, including CA$356 million of net debt.
Pinnacle’s Board of Directors has unanimously determined that the transaction represents the best course of action for the company and its shareholders. On closing, the transaction will deliver immediate, significant, and certain cash value to our shareholders. At the same time, the combination of Pinnacle and Drax will create a global leader in sustainable biomass with the vision, technical expertise, and financial strength to help meet the growing demand for renewable energy products, which is exciting for our employees, customers, and others around the world, said Duncan Davies, CEO of Pinnacle
Over double production capacity
The proposed 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.
Drax and Pinnacle combined would mean 17 pellets plants in North America located in three major fibre baskets with a combined annual production capacity of 4.9 million tonnes from 2022 shipping from four deepwater ports located on both the Atlantic and Pacific coasts.
It also would position 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).