Oil and gas companies might be riding a long-tail boom these days, but you wouldn't know that from the latest action in Equinor(NYSE: EQNR). The Scandanavian energy company didn't do well on Monday, sinking by 3% in price on news of a fresh acquisition. The S&P 500 index also landed in negative territory, but not as deeply, as it fell a comparatively benign 1%.
Investing in the wind
Equinor's major news item that day was the deal it struck to buy a minority stake in Ørsted (OTC: DNNG.Y), the largest energy company in Denmark. Ørsted is known for being a top green energy company, not only in its home country but throughout Europe, and is particularly strong in wind energy, a segment in which Equinor is also active. Equinor has acquired just under 4.2 million shares of the company, giving it a nearly 10% ownership stake with a corresponding voting share.
The largest single shareholder of Ørsted is the Danish state.
In its press release trumpeting the deal, Equinor CEO Anders Opedal said that "The exposure to producing assets complements Equinor's operated offshore wind portfolio of large projects under development." All told, according to the company, its new investment has net generation capacity of roughly 10.4 gigawatts of renewable energy. It aims to reach a gross amount of 35 gigawatts to 38 gigawatts by 2030.
A new portfolio asset worth $2.5 billion
The deal wasn't cheap; Equinor added that its Ørsted holding is valued at approximately $2.5 billion based on the latter's closing price last Friday. Investors might feel that this is a steep price to pay for a minority stake that likely gives the buyer little influence over Ørsted's strategy and operations.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ørsted. The Motley Fool recommends Equinor. The Motley Fool has a disclosure policy.
