British energy group BG Group has gone hostile and repitched its $15.50 per share offer for Australian power generator and retailer Origin Energy.
Origin said shareholders should ignore it for the time being; the market believes there might be a counter offer, but is having a bit of a laugh about BG’s heavy-handed tactics.
The off-market takeover bid values the Origin $13.8 billion which is unchanged from the offer of $15.50 a share that Origin originally accepted and then rejected last month.
In going hostile, instead of increasing the price and winning a deal with the Origin board, BG Group has gone on the offensive, bagging Origin’s coal seam methane reserves, its plans for those, including a possible Queensland LNG plant, and claimed that other Queensland gas deals had no bearing on Origin’s value.
It’s in fact what BHP Billiton did in its bid for Rio Tinto:BHP and BG share the same advisers.
In fact there’s a strong suggestion that Origin’s view of its own value is a load of hot air (sorry) and only BG Group can bring the necessary expertise and realistic approach to the development of them.
The renewed offer from the British group in fact illustrates how desirable Origin has become as rising oil and coal prices, plus worries about carbon emissions and other pollutants, have increased the value of resources like coal seam methane gas.
Some of the BG criticisms verge on the laughable: BG group made no mention of these worries (not enough gas for example and unknown technology) when trying to be a ‘friend’ of Origin back in May.
BG seems to have returned to Reading, outside London, had a bit of a sulk about being rejected and decided to come back with all macho, with an unchanged offer and a hostile assault on its target and board.
That’s just the thing that will not make them sue for peace after various deals in May lifted valuations, and the worth of Origin to its shareholders and a company like BG. The Origin board now has a better understanding of its value and future and if BG group is to succeed, the price will have to be higher and the bid will have to become friendly.
BG is no doubt depending on hedge funds and other speculators delivering the company to it. There are only two local institutions with substantial holdings above 5%, so the register is wide open. There are more than 879 million shares on issue, a lot of small holders who would normally support the board.
Investors took one look at the renewed BG offer, had a chuckle and chased Origin shares higher to around $16.42. The shares rose all day and ended up 90c, up almost 6% and a handy premium to the unchanged offer.
BG Group spent much of its statement knocking the idea that the Santos deal with Petronas was applicable to Origin.
It has to because the deal effectively spoiled the first attempt from BG last month. Santos announced a deal with Malaysia’s Petronas over a planned liquefied natural gas plant in Queensland. That came the same day as Origin’s board was preparing to accept the sweetened offer from BG. It quickly reversed its decision and also issued upgraded reserves figures for its Queensland coal sea gas acreage.
The $2.6 billion partnership between Santos and Petronas to build a Queensland export LNG plant using coal seam gas set a new and higher basis for the valuation of this gas type. More importantly it lifted the value of its reserves and those of rivals, like Origin and Arrow Energy, which later sold an interest in some of its gas holdings to Shell for more than $800 million.
The BG offer and the subsequent deals between Santos and Arrow sent the gas sector surging higher as investors, especially institutions, realised the hidden value that could be in coal seams in Queensland and NSW (and possibly in the brown coal areas of the Latrobe Valley in Victoria).
But rather than look at the new value of Origin after its first bid and lift the offer price to something more realistic, BG Group preferred to look back to before its first approach was revealed.
BG said its offer price represented a 48% cash premium on Origin’s closing price of $10.47 on April 29 just before it announced the first offer.
BG Group said its offer represented a "material premium" for Origin shareholders and reflected the value of Origin’s energy business and its prospective coal seam gas (CSG) development.
"Recent transactions, analysed on a comparable basis, confirm that BG Group’s offer provides full value to Origin’s shareholders," chief executive Frank Chapman said in a statement to the ASX.
Mr Chapman said Origin shareholders had only "limited visibility" of the risks in Origin’s current reserves position.
He claimed Origin did not have sufficient CSG reserves for a liquefied natural gas joint venture.
But earlier this month Origin managing director Grant King said its coal seam gas assets now made the company a far more valuable business.
At the time Mr King said Origin was worth "a lot more" than BG Group’s earlier $15.50 offer.
In its statement Tuesday, BG Group said there were no CSG to LNG plants anywhere in the world currently operating and that competing projects in Australia were more advanced.
"Under Origin’s proposed CSG joint venture shareholders would therefore bear protracted and material technical, project execution and commercial risks," Mr Chapman said.
"Such a project even if successful would be unlikely to generate any revenues until 2015 or 2016 at the earliest.” We would contrast these points with the certainty of our 72 per cent premium, all cash offer."
It’s all about trying to prevent shareholders from expecting too
