Queensland Gas Company shareholders have emerged big winners from a series of takeover offers which boosted the value of their investment, doing what a host of investment and institutional analysts couldn’t see: expose the company’s rapidly growing value.
QGC shareholders accepted a revised and better partial offer from AGL Energy on Friday, shortly before a meeting of shareholders in Brisbane was due to vote on the original offer.
The meeting’s outcome had been complicated Wednesday by a last minute offer worth $812 million from US-based investor, TWC (part of the Societie Generale Banking group of Europe).
That came Wednesday, on Thursday QGC slipped out a statement revealing the upward revaluation of its gas reserves by 25 per cent and then late Thursday AGL Energy increased its offer with a letter to the company which was then released Friday morning.
Wonderful timing you might say but in any case the deal has seen QGC shareholders retain their company, at the cost of acquiring a major shareholder. But more importantly they have a very big gas supply contract with AGL.
AGL’s new offer is worth $1.60 a share, up 16c from the original $1.44 a share. That will give it a 27.5 per cent stake after a buyback of 14.7 per cent of its capital by the company at $1.52 a share.
This will cost AGL $327 million.
AGL’s deal is summarized:
1. Acquiring 204.3 million QGC shares at $1.60 per share.
2. Entering into a 20-year gas sale agreement with QGC for the purchase of up to 740 petajoules.
3. Entering into a three-year gas market development services agreement.
For QGC the important part of the transaction is the 20-year sales contract with AGL to buy up to 740 petajoules of coal seam methane gas.
The deal is secret but some estimates claim the total value could be worth well over $1.5 billion over 20 years. It is understood though to be a low-priced deal for AGL compared to some of its other gas supply contracts, but more importantly it gives AGL a safe and steady supply of gas for the big investment it made a fortnight ago in the state’s biggest gas utility. Power Direct and its earlier buy, Sun Gas.
QGC recommended the new AGL deal, rejected a scrip and cash offer from TCW and that’s the way the meeting voted on Friday.
So after three bids and two revised deals from AGL, QGC shareholders have seen the value of their shares increase from the low $1.26 in the first Santos offer (and $1.30 plus 50c of ‘blue sky’ in the second) to around $1.60 and a guaranteed income stream from the second of the AGL deals.
In the end the first offers from Santos were not real in that they always had to run the gauntlet of the ACCC which knocked them back.
Now AGL Energy has locked itself in with the QGC stake: the 27.5 per cent will mean effective control.
If AGL is really serious about doing a deal with Origin (it will have to be hostile and very expensive), the Queensland consumer, production and distribution assets acquired in the Sun Gas and Powerdirect deal in Queensland and possibly the QGC stake will all be candidates for sale.
It’s a good deal for QGC shareholders but there will be no more tension in the price, except if AGL and Origin lock horns.
In recognition of this the AGC share price sank in Friday’s easing market to end 5.5c down at $1.48. Still it’s a lot better than languishing around $1.20 or less as it was late last year before Santos popped up with the first of its bids.
