If APA Holdings wants to takeover Envestra (ENV), it will have to make a realistic offer after the initial $1.98 billion share and cash offer was rejected yesterday.
APA already owns 33% of Envestra and last month offered 0.1678 of its stapled securities for each Envestra share, plus an annual dividend payment of up to 3c a share.
Based on APA’s closing price immediately before the bid was announced, the implied value of its offer was A$1.10 for each Envestra share.
The initial reaction was negative from Envestra management.
And yesterday Envestra told the market that an independent committee formed by the company’s board to consider the bid, had decided that it "significantly undervalues" the company, according to a statement.
Adding to APA’s problems with the offer is news that the the Austrralian Consumer and Competition Commission has decided to review the near $2 billion bid.
That’s because if it happens (which looks unlikely unless the offer is lifted), acquisition of Envestra would give APA dominance in gas supplies into a number of key urban markets especially on the East Coast.
And that might be a bit too much for the ACCC because there are no competing sources of gas for these markets, especially from the East Coast’s most prospective current and future source, the Cooper Basin.
Investment analysts have been wary of the APA offer because of the perceived competition problems and the low price, which does not include a control premium.
It was felt that because it already owned 33%, APA did not want to pay any more and rejected offering a control premium to other shareholders.
There have been market rumours that APA was planning to sweeten the offer with more cash.
That may now come more quickly, but the ACCC looms as a bigger obstacle.
APA shares were up 6c at $6.11 in early trading, but lost ground to end steady on Friday’s close at $6.05. APA shares eased half a cent to $6.115.
ENV Vs APA YTD – Envestra rejects APA’s bid
In a late statement yesterday, APA said it was surprised by Envestra’s announcement that its Independent Board Committee has decided to reject, without any discussion with APA, APA’s Proposal to Envestra’s shareholders.
"The APA Proposal implies a Regulated Asset Base multiple of around 1.4 times, which, given the nature of Envestra’s regulated assets, should be recognised as an attractive value proposition.
"APA will provide a further update when it has fully considered Envestra’s response."
