The Irish state’s sell-off of national gas company, Bord Gais, is heating up – if you’ll pardon the pun. Under the terms of the EU/IMF bailout, the state must privatize the energy company in order to raise €1 billion to pay off part of the national debt.

Bord Gais Viridian

The main players

However, while Viridian has been in the running from the start, both US investment giant The Blackstone Group L.P. (NYSE:BX), and UK energy firm Centrica PLC (LON:CNA) (OTCMKTS:CPYYY), pulled out on seeing the €1 billion reserve price. Other potential suitors, such as Malaysian firm Tenaga Nasional Bhd (ADR) (OTCMKTS:TNABY), exited the race in the early stages, leaving only Viridian willing to trump up the reserve.

Yet, despite what was rumored to be an attractive bid from Viridian, the Irish government then scrapped the reserve in order to entice bidders back to the table.

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Viridian: Why the change of heart?

The fact that Viridian’s parent – Bahrain-based investment firm Arcapita – is only just emerging from US bankruptcy under Chapter 11 rules might have something to do with the change of tact from the Irish. Arcapita needs to liquidize its investments and should Bord Gais be handed over to Viridian, there’s every possibility that the company will be stripped down to the bones and sold off.

Understandably, that made the government and the unions a little jittery. Bord Gais union representative Oliver McDonagh said:

“The union would have very serious concerns if Bord Gais is split into various companies.”

So, the reserve was scrapped and The Blackstone Group L.P. (NYSE:BX) was asked to re-enter the final bidding process.

Is Blackstone holding all the cards?

It comes as something of a surprise that Blackstone pulled out. The investment firm has a $16.7 billion buyout fund to call on. But is it possible that The Blackstone Group L.P. (NYSE:BX) was just playing hard to get? Andrew Dowler, a managing director at Blackstone refused to comment, but the firm subsequently installed Investec plc (LON:INVR) (OTCMKTS:IVTJF) as its adviser and put in a new, improved bid just before the deadline on Monday, November 25th.

It was joined by Centrica PLC (LON:CNA) (OTCMKTS:CPYYY), in partnership with Canadian renewable energy investor, Brookfield Asset Management. Brookfield could be looking to acquire BGE’s wind energy assets. Again, neither company would comment on their bids.

And for the winner, the spoils

Although deregulated in 2007, the Irish residential energy market still isn’t very competitive, certainly not compared to neighboring UK. There are just a handful of suppliers and electricity prices remain among the highest in Europe. With close to 900,000 residential customers buying gas and/or electricity from Bord Gais, it could be a profitable opportunity for the winning bidder.

Whatever happens, Northern Irish firm Viridian says it is still planning to enter the Irish residential energy market next year and go head-to-head with BGE. Viridian has 80% of the market in Northern Ireland and it makes good commercial sense to consolidate the market with a foray across the border.

Meanwhile, given both Viridian’s and Centrica PLC (LON:CNA) (OTCMKTS:CPYYY)’s dubious intentions for Bord Gais, Blackstone may not have to pay the highest price to secure the business. But, if that is the case, the final price might be a bit lower than the €1.4 billion that the analysts had initially forecast.