* Shell offers A$2.465 a share for ERM, 43% premium
* ?ERM board agrees deal, founder with 27% stake backs bid
* ?Shell targets Australia in global clean energy push
* ERM shares jump 42%(Adds Shell spending on power, sonnen background)
By Sonali Paul
MELBOURNE, Aug 22 (Reuters) - Royal Dutch Shell hasmade its first foray into Australia's highly competitive powersector with a A$617 million ($419 million) takeover offer forERM Power Ltd, the country's no.2 energy retailer tobusinesses and industry.
The deal would instantly give Shell a power supplier withalmost a quarter share of the commercial and industrial retailmarket in Australia, second only to Origin Energy inthat space. It will also get two gas-fired power stations.
Shell, already one of Australia's biggest gas producers,wants to use its global scale in oil and gas to build a powerbusiness, as the world rapidly shifts towards cleaner energy. Itplans to boost annual spending on the strategy to between $2billion and $3 billion by 2025.
"This acquisition aligns with Shell's global ambition toexpand our integrated power business and builds on Shell EnergyAustralia's existing gas marketing and trading capability,"Shell Australia's Country Chair Zoe Yujnovich said in astatement.
ERM agreed to the offer, pitched at a big 43% premium to itslast closing price, and recommended shareholders should acceptit in a vote expected in November.
ERM's founder and top shareholder, Trevor St Baker, whospeaks for 27% of the company's shares, said in a statement hewould accept the offer of A$2.465 a share if no higher bidemerges.
Shell, which was advised by UBS, said Australia is one ofthe core markets for its new 'Emerging Power' theme, focused onstrong growth in renewables to complement traditional fuels.
The ERM acquisition fits well with Shell's recent takeoverof German solar battery maker sonnen, which has a presence inAustralia, giving Shell a small foothold in selling tohouseholds alongside ERM's big business customers.
The power business will also give Shell another product tosell to its long established big fuel customers, like miners.
ERM Chief Executive Jon Stretch said there was littleoverlap with Shell's existing business in Australia, so heexpected most of ERM's staff would remain with the business.
"It's clear that there's little in the way of overlap andcost synergies and the focus will be on combining for growthopportunities," he told reporters on a conference call.
ERM's shares soared to a four and a half-year high of A$2.50after the bid was announced and last traded at A$2.44, justbelow the offer price, indicating investors don't expect ahigher offer to emerge.
The company on Thursday reported underlying earnings of$90.5 million for the 2019 financial year, down 7% from a yearearlier, as sales fell 8% to 17.7 terrawatt hours (TWh) ofpower. It forecast sales would grow to 18.5 TWh this year.
Origin Energy, which also reported its results on Thursday,said it was undaunted by the pending entry of Shell in powerretailing, saying Origin has managed to grow its share ofcommercial and industrial customers even with ERM as a strongcompetitor to date.
"It continues to be a competitive market. It's hard toanticipate what they may do differently," Origin Chief ExecutiveFrank Calabria told Reuters in an interview.
($1 = 1.4743 Australian dollars)(Reporting by Sonali Paul in Melbourne;Additional reporting by Aby Jose Koilparambil and ShriyaRamakrishnan in Bengaluru; Editing by Richard Pullin)
