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China Energy Reserve and Chemical Group Australia has made a $430 million takeover offer for Sydney-based gas company AWE.
The Chinese-owned firm has made an unsolicited, non-binding, indicative and conditional proposal at 71 cents a share.
AWE’s board has not rejected the offer, but said “its initial reaction is that the indicative proposal is not sufficiently attractive to provide access to due diligence”.
The Chinese company’s offer is a 31 per cent premium on AWE’s Wednesday closing price of 54 cents a share. The proposal also includes shares issued under AWE’s current Share Purchase Plan, which is slated to run until 14 December.
Whilst above the market price, the offer is well below recent analyst valuations, which have strenghtened recently due to AWE’s Waitsia project’s 78 per cent increase in proven and probable reserves to 811 petajoules.
RBC Capital Markets has placed a valuation of 91 cents a share for AWE, an upgrade from its previous valuation of 68 cents a share.
Its analyst Ben Wilson concurred with the board’s assessment of the offer.
“While any bid from a company associated with [China Energy parent China National Petroleum Corporation] must be taken seriously, we think the bid pricing needs to be higher to engage the board and major shareholders,” Mr Wilson said.
“This could be an exercise in price discovery from the bidding party and an attempt to compel the board to engage with major shareholders, particularly if more hedge funds come on the register.”
He said a recent share offer in AWE had been well taken up by long-term existing shareholders, “which suggests shareholders may not be easily budged particularly given the strong progress made on delineating a large Waitsia gas resource.”
Mr Wilson also stated that obtaining Foreign Investment Review Board approvals would be difficult due to the potential importance of Waitsia to Western Australia.
“We think FIRB approval could be a major issue given the source of the bid and the emerging status of Waitsia as an important strategic asset within the WA domestic gas market,” he said.
However, Fat Prophets’ analyst David Lennox said the perception in the market was that AWE had missed the LNG boom, and this approach may be an appropriate offer.
“It’s always been viewed as a sleepy hollow, rightly or wrongly,” Mr Lennox said.
“They’ve stuck at the Perth Basin, at the Waitsia field, and it looks like it is paying off now.
“At this sort of price, one would suggest it’s a good offer.”
This is the third takeover bid for AWE in four years.
In May last year, it rejected an unsolicited $421 million cash takeover proposal from US private equity fund Lone Star Funds.
Senex also made a cash and share offer for AWE in 2013.
Mr Wilson said continued interest in acquiring control of AWE reinforces his firm’s positive outlook on the Waitsia asset.
AWE has appointed UBS Australia as a financial advisor and Allens as its legal advisor.
AWE’s share price shot up 19 per cent to 65 cents by mid-morning.
This story Administrator ready to work first appeared on Nanjing Night Net.