The board of directors of each of Drax Bidco and Harmony Energy Income Trust are pleased to announce that they have reached agreement on the terms of a recommended cash acquisition pursuant to which Drax Bidco, a wholly-owned subsidiary undertaking of Drax Group plc (LON:DRX), will acquire the entire issued ordinary share capital of HEIT. The Acquisition is intended to be effected by means of a scheme of arrangement under Part 26 of the Companies Act.
· Under the terms of the Acquisition, HEIT Shareholders shall be entitled to receive:
for each Scheme Share: 88.0 pence in cash
· The Consideration per Scheme Share values the entire issued share capital of HEIT at approximately £199.9 million and represents a premium of approximately:
o 5 per cent. to the Foresight possible offer of 84.0 pence per HEIT Share on 17 March 2025 (being the date of the Foresight Rule 2.4 Announcement);
o 35 per cent. to the Closing Price of 65.2 pence per HEIT Share on 14 March 2025 (being the last Business Day prior to the date of the Foresight Rule 2.4 Announcement);
o 11 per cent. to the Closing Price of 79.2 pence per HEIT Share on 24 March 2025 (being the last Business Day prior to the date of this announcement);
o 84 per cent. to the Closing Price of 47.8 pence per HEIT Share on 29 May 2024 (being the last Business Day prior to the date of the announcement of HEIT’s ongoing asset sale process).
· The board of directors of each of Drax Bidco and HEIT are also pleased to note that, in total, HEIT Shareholders (including the HEIT Directors) representing 19.6 per cent. of HEIT’s issued ordinary share capital as at the Latest Practicable Date are supportive of the Acquisition and have each entered into irrevocable undertakings to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting.
Strategic rationale for the Acquisition
· Drax believes that the Acquisition represents a highly attractive opportunity, one which is complementary to the Wider Drax Group’s existing FlexGen portfolio. HEIT, a publicly listed investment trust set up to acquire ready-to-build battery energy storage system assets, represents a compelling opportunity to add operating BESS assets to the Wider Drax Group’s FlexGen portfolio, offering the following key benefits:
· ability to perform daily cycling to capture the spread between overnight prices and peaks as well as benefit from market volatility events;
· provides access to additional ancillary services markets by adding rapid and short duration response capability; and
· complements Drax’s existing 24/7 trading capability operating across wholesale, balancing and ancillary service markets.
· Drax views HEIT as a highly attractive large scale UK BESS portfolio, comprised entirely of two-hour fully operational, cash generative assets which can operate standalone today and allow for the future potential in-sourcing of trading and optimisation. Drax expects that return on invested capital from the Acquisition will significantly exceed the Wider Drax Group’s target weighted average cost of capital.
Recommendation
· The HEIT Directors, who have been so advised by Panmure Liberum as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing its advice to HEIT Directors, Panmure Liberum has taken into account the commercial assessments of the HEIT Directors. Panmure Liberum is providing independent financial advice to the HEIT Directors for the purposes of Rule 3 of the Code.
· Accordingly, the HEIT Directors intend to recommend unanimously that HEIT Shareholders vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting as the HEIT Directors have irrevocably undertaken to do in respect of their own beneficial holdings of 101,116 HEIT Shares representing, in aggregate, approximately 0.04 per cent. of the ordinary share capital of HEIT in issue on the Latest Practicable Date.
Irrevocable undertakings
· As noted above, Drax Bidco has received irrevocable undertakings from each of the HEIT Directors to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting, in respect of a total of 101,116 HEIT Shares, representing approximately 0.04 per cent. of the existing issued ordinary share capital of HEIT on the Latest Practicable Date.
· Drax Bidco has also received irrevocable undertakings to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting from HEIT Shareholders in respect of a total of 44,448,634 HEIT Shares representing, in aggregate, approximately 19.6 per cent. of HEIT’s existing issued ordinary share capital on the Latest Practicable Date.
· Drax Bidco has therefore received irrevocable undertakings in respect of a total of 44,549,750 HEIT Shares representing, in aggregate, approximately 19.6 per cent. of HEIT’s ordinary share capital in issue on the Latest Practicable Date.
Information on Drax Bidco and Drax
· Drax is a renewable energy company engaged in renewable power generation, the production of sustainable biomass and the sale of renewable electricity to businesses.
· Drax operates a generation portfolio of sustainable biomass, hydro-electric and pumped storage hydro assets in England and Scotland and is developing three open cycle gas turbine assets, two in England and one in Wales. Drax’s Energy Solutions business sells renewable electricity to industrial and commercial customers in the UK. The Wider Drax Group also operates a biomass pellet production business with 18 operational and development sites for a combination of own-use and third-party sales, from existing and new markets, including Sustainable Aviation Fuel (SAF), where Drax is developing a pipeline of biomass sales opportunities in North America, Asia and Europe.
· The Wider Drax Group employs over 3,200 people in the UK, US, Canada and Japan. The Wider Drax Group had total revenue of £6,163 million in 2024 and adjusted EBITDA of £1,064 million.
· Drax Bidco was incorporated on 27 December 2024 and is a wholly-owned subsidiary undertaking of Drax. It has not traded since its date of incorporation, nor has it entered into any obligations other than in connection with the Acquisition.
Timetable and Conditions
· It is intended that the Acquisition will be implemented by way of a scheme of arrangement between HEIT and HEIT Shareholders under Part 26 of the Companies Act (although Drax Bidco reserves the right to implement the Acquisition by way of a Takeover Offer, subject to the Panel’s consent and compliance with the Code).
· The Acquisition is conditional on, among other things, the approval of the requisite majority of HEIT Shareholders at the Court Meeting and at the General Meeting. In order to become Effective, the Scheme must be approved by a majority in number of the HEIT Shareholders voting at the Court Meeting, either in person or by proxy, representing at least 75 per cent. in value of the HEIT Shares voted. In addition, a special resolution implementing the Scheme must be passed by HEIT Shareholders representing at least 75 per cent. of votes cast at the General Meeting. Following the Court Meeting, the Scheme must also be sanctioned by the Court.
· For the purposes of Rule 29.1(d) of the Code a valuation of HEIT’s portfolio will be included in the Scheme Document or, if applicable, the offer document.
· The Acquisition is also subject to the Conditions and terms set out in Appendix I to this announcement, including, amongst other things, the receipt of regulatory approval from the Secretary of State pursuant to the NSI Act, as further described in this announcement.
· Subject to the satisfaction or (where applicable) waiver of the Conditions, the Acquisition is expected to become Effective around the end of Q2 2025.
· The Scheme Document, containing further information about the Acquisition and the Scheme, including a valuation report on HEIT’s portfolio in accordance with Rule 29 of the Code, and notices of the Court Meeting and the General Meeting, will be distributed to HEIT Shareholders (along with the Forms of Proxy for use in connection with the Court Meeting and the General Meeting) as soon as reasonably practicable and within 28 days of this announcement. The Scheme Document will also be made available by HEIT on its website at www.heitp.co.uk/investors/proposed-offer-from-drax.
Commenting on the Acquisition, Norman Crighton, the Non-Executive Chair of HEIT, said:
“Since its launch in November 2021, HEIT has assembled a fully operational portfolio of eight 2-hour BESS projects totalling 790.8 MWh / 395.4 MV, which have attracted a strong level of interest through both our recent Asset Sale process and now through a potential bid from Foresight and the recommended offer by Drax.
The HEIT Board believes that value to HEIT Shareholders will be maximised through the terms of the Acquisition. Further, the HEIT Board believes that the Acquisition will provide HEIT Shareholders with the opportunity to realise the value of their holdings, in cash, at an attractive value which is in excess of the reasonable medium-term prospects for HEIT on a standalone basis as a listed company.”
Commenting on the Acquisition, Will Gardiner, the Chief Executive Officer of Drax Group plc, said:
“The Acquisition is a significant investment in growing our FlexGen portfolio, supporting UK energy security and delivering a clean power system.
The Drax Directors believe that adding battery storage to our FlexGen portfolio enables us to provide even more secure power to the country when it is needed. In combination with our long duration storage, flexible generation, demand side response capabilities and renewable generation from biomass, we will be able to supply 4.5GW of dispatchable generation to meet demand.
As more intermittent renewable energy connects to the country’s network, more dispatchable and reliable generation will be required to help keep the lights on when the wind isn’t blowing or the sun isn’t shining.
We are working to create value and growth in the short, medium and long-term, aligned to the UK’s energy needs, and which the Drax Directors believe is underpinned by strong cash generation, a disciplined approach to capital allocation and attractive returns for shareholders.”
This summary should be read in conjunction with the full text of this announcement. The Acquisition shall be subject to the Conditions and further terms set out in Appendix I to this announcement and to the full terms and conditions which shall be set out in the Scheme Document. Appendix II to this announcement contains the sources of information and bases of calculations of certain information contained in this announcement, Appendix III contains a summary of the irrevocable undertakings received in relation to this Acquisition and Appendix IV contains definitions of certain expressions used in this summary and in this announcement.
