Australia's second largest energy retailer AGL Energy plans to buy smaller rival Australian Power & Gas for about $100 million.
Australian Power & Gas has recommended shareholders accept AGL's offer.
AGL has offered 52 cents a share, representing a 33 per cent premium to Australian Power & Gas's closing price of 39 cents on Friday.
Australian Power & Gas's stocks had shot up 11.5 cents, or 29.49 per cent, to 50.5 cents by 1150 AEST, still below the offer, while AGL's shares were 15 cents, or 1.0 per cent weaker at $14.95.
AGL will be able to add 354,000 mostly east coast customers, or 10 per cent, to its customer base, under the $158 million deal which includes a relatively high estimated $55 million in net debt for the target.
AGL managing director Michael Fraser said that, with the deal, the company would achieve its goal of 800,000 electricity customers in NSW.
Australian Power & Gas recently forecast a full year loss of $5 million amid weak demand and high energy prices.
AGL said it had already struck agreements to buy 19.9 pent of the company with Australian Power & Gas's major shareholders, Nippon Gas, the Cobra Group and the Poole Interests.
It said it expects to complete the deal by October, which is subject to 90 per cent acceptance and will be paid out of existing cash and debt.
