The dramatic downturn for Ørsted and ambitious targets for the now much more valuable Equinor are fueling speculation that the Norwegian utility could be tempted to buy part - or potentially all - of Ørsted.

The possibility is raised by analyst Teodor Sveen-Nilsen of Norwegian financial house SpareBank 1 Markets, who, however, finds it most likely that Equinor will build up a blocking stake in the Danish energy company, which announced on Wednesday that it is taking steps to shore up its capital structure following shocking new multi-billion write-downs.

”Building a blocking stake is more likely than a full acquisition: The past two years have seen dramatic changes in the market capitalization of Equinor and Ørsted. At the beginning of 2023, Ørsted’s market cap was 1.8 times higher than Equinor’s, while at the beginning of Q4 2023, Equinor’s was five times higher than Ørsted’s. Such changes fuel acquisition and merger speculation!” writes Sveen-Nilsen in a note on Wednesday.

The speculation should also be seen in light of Equinor’s ”likely scrapping of its US offshore wind projects, the company’s net cash position and Equinor’s very ambitious 2030 renewable energy targets relative to what the current portfolio supports.”

According to the analyst, Equinor needs ”an Ørsted” to reach its 2030 targets. Equinor has a target of 12-16GW of installed capacity by 2030, but the company’s current portfolio, defined as projects in production, under construction or contracted, is ”only” around 5.1GW.

Equinor therefore needs more projects to meet its expectations of 12-16GW by 2030. In comparison, Ørsted’s portfolio is 9.6GW. This includes onshore and offshore capacity, both installed and under construction, and excludes the scrapped US projects.

”This means that Equinor needs approximately one Ørsted to reach its ambition of 12-16GW capacity in 2030,” writes the analyst, who does not believe Equinor will acquire all of Ørsted in the short term. 

”In our view, a more likely scenario is that Equinor 1) contributes to a potential upcoming share issue in Ørsted and/or 2) buys shares in the market to obtain a blocking position of at least 10%,” Sveen-Nilsen writes.

At current market capitalization, 10% of Ørsted equates to USD 2bn or NOK 7 per share for Equinor, and the analyst points out that at the end of the third quarter, Equinor had a positive net cash position of NOK 39 per share.

Equinor currently has a market capitalization of approximately NOK 1,122bn. In comparison, Ørsted’s is at NOK 114bn after Wednesday’s 20% price drop - and this year’s 56% decline.

(Translated using DeepL with additional editing by Kristoffer Grønbæk)