Oil producer Total (TOT) is hedging its bet on fossil fuels with a €950 million ($1.1 billion) deal to buy Saft, a French maker of nickel and lithium batteries.
Total will offer €36.50 per share offer for Saft, pitching its bid at a 38.3% premium to the target's Friday closing price of €26.40 and about nine times Saft's 2015 Ebitda, the two companies said on Monday, May 9.
"The acquisition...is part of Total's ambition to accelerate its development in the fields of renewable energy and electricity," said Total CEO Patrick Pouyanné in a statement. "It will notably allow us to complement our portfolio with electricity storage solutions, a key component of the future growth of renewable energy."
Saft, based in Bagnolet on the eastern outskirts of Paris, designs and manufactures batteries for the industrial, transportation and civil and military electronics markets. The deal will make Total a major player in the race to create more effective batteries capable of storing the variable input that is a feature of energy generation from solar and wind farms.
The deal for Saft builds on Total's 2011 acquisition of a majority stake in San Jose, Calif.-based solar power company Sunpower for $1.4 billion. Pouyanné last year earmarked $500 million a year for spending on renewable energy, a fraction of his company's $19 billion capital expenditure budget for 2016, but still one of the largest commitments to green energy among the so-called oil majors.
Oil companies, like their utility counterparts, are coming under increasing pressure to invest in renewable and cleaner energy, notably as a result of the stricter global emission targets agreed at last year's Paris climate change summit. These could limit demand for fossil fuels and the scope to burn existing reserves.
Despite that pressure, big oil companies have a checkered history of investment in renewable energy and Total's latest investment goes against a wider trend of large oil companies cutting back on green energy initiatives.
BP (BP) , Royal Dutch Shell (RDS.B) and Chevron (CVX) have all largely abandoned attempts to create significant renewable energy units to sit alongside their hydrocarbon operations. BP, which once suggested that its initials stood for Beyond Petroleum, closed its BP Solar unit in 2011 and later launched a failed auction of its U.S. wind assets. Shell reduced funding for its planned expansion into wind, solar and hydrogen in 2009, while Chevron sold its renewable energy subsidiary, Chevron Energy Solutions, in 2014.
Past efforts "were relatively short-lived and many IOCs (international oil companies) have subsequently pulled out of such ventures," noted Paul Stevens, an energy researcher at London-based think tank Chatham House in a report published on May 5. "A key reason it that the economics of renewables are very dependent on the regulatory environment set by governments. It is also not obvious that IOCs would have the necessary technical or managerial skills to operate successfully in what is rapidly becoming a decentralized energy system."
Saft shares were suspended on Monday. Total shares traded at €43.06, up €0.12, or less than 1%.