Asia’s second-richest man Li Ka-shing has reportedly made a $7.3 billion bid for Australian energy utility and infrastructure owner Duet Group (DUE).
The bid will be officially announced this morning but was revealed in media reports last night which said the bid was incomplete and only indicative.
Bidding for Duet will be Cheung Kong Infrastructure, and the situation has been confused by the fact that the offer comes only four months the Federal government blocked the purchase of NSW’s electricity poles and wires business by the same group.
The reports say Cheung Kong Infrastructure is offering $3 for each Duet Group security in a deal that values the company at $7.5 billion.
The offer represents a 27%, or $2 billion premium to the company’s closing price on Friday of $2.35. Seeing Duet shares have only risen just under 3% so far this year (despite its fat yield around 7%), directors will have a tough time saying ’no’ to the bid from the Hong Kong group.
Duet’s board will be under pressure to engage with Cheung Kong at least to allow the Hong Kong company to do due diligence to firm up its offer.
Duet has around $6.26 billion in short and long term debt meaning it has an enterprise value of $13.5 billion (according to June 30 figures). Duet had total assets of $11.1 billion covering its energy distribution and infrastructure assets in Australia, the UK, US and several other countries.
Duet Group will also need to win the backing of its shareholders, which includes Unisuper with a 16% stake. Offshore investors, Lazard, Blackstone and Vanguard who are also big shareholders in the company. The deal will also need approval by the Foreign Investment Review Board.
Duet Group owns Multinet Gas, one of three Victorian gas distribution networks, and two-thirds of Victorian electricity distributor United Energy. It also owns the Dampier Bunbury gas pipeline in Western Australia. Duet’s other assets include DBP Development Group which builds, owns and operates pipelines and Energy Developments, an international group that provides clean energy and remote energy solutions.
Cheung Kong Infrastructure owns major energy assets in Australia, including a controlling stake in South Australian electricity distributor ETSA. Cheung Kong Infrastructure and another company linked to Mr Li, Power Asset Holdings, own CHEDHA Holdings which in turn holds Citipower and Powercor.
But complicating the bid is the confusion over whether Cheung Kong Infrastructure, which is listed in Hong Kong, will be allowed to bid after being blacklisted by the Federal Government earlier this year.
Cheung Kong Infrastructure was shortlisted as a bidder for the long-term lease of NSW’s Ausgrid electricity assets earlier this year, while the Chinese government-owned China State Grid Corporation was also a shortlisted bidder.
However, the federal government knocked back the bidders due to national security concerns about a China state-owned company owning the vital infrastructure.
Cheung Kong Infrastructure is not state-owned but the Turnbull government had concerns about Mr Li’s links to senior government officials in China – a view which puzzled many in business who saw it as being wrong-headed.
The stake in Ausgrid was later purchased by AustralianSuper and IFM Investors for $16.2 billion.
The year to June saw Duet raise $1.88 billion to buy Energy Developments (for $1.4 billion) and the final 20% of the Dampier Bunbury pipeline. The annual meeting last month heard how the company was targeting a distribution this financial year of 1.95 cents a security, up marginally from the 18 cents paid for 2015-16.
