APA looks to bring Envestra on board
The merger proposal, with APA offering shares to Envestra shareholders, follows a steep rally in APA shares and comes as it faces dwindling domestic growth options.
The latest proposal comes not long after it wrapped up the $1.4 billion acquisition of Hastings Diversified, which also ran the gauntlet of a lengthy review by the Australian Competition and Consumer Commission, and resulted in APA being forced to offload the Moomba to Adelaide pipeline.
APA is to offer 0.1678 APA shares for each Envestra share, placing a notional $1.10 value on Envestra shares and valuing the company at $1.98 billion. APA already manages Envestra's assets and holds a third of the shares on issue.
APA operates a network of long-distance gas pipelines in the eastern states, Envestra owns gas reticulation networks in Adelaide, Melbourne and Brisbane.
The ACCC said on Tuesday it was aware of the APA proposal, and it reviewed transactions that could restrict competition.
"The issue here is not the price but, rather, competition concerns," one industry observer said. "APA had a lot of drama with the ACCC with the Hastings Diversified deal.
"But this proposal looks to involve vertical integration since APA will be the hauler of the wholesale gas as well as the provider to the retailer."
Despite the wariness in some parts of the industry, APA was optimistic the ACCC would not oppose the deal.
"There are no competition issues that would cause concern for the ACCC with this transaction," managing director Mick McCormack said.
The high level of capital demands by Envestra over the next few years meant that a full merger of the two groups made sense at this point.
"The bigger the business the better the access to international capital markets. This is a very capital-intensive business," Mr McCormack said. Envestra recently raised $160 million in fresh equity and has a $1.3 billion capital spend over the next few years that will need to be funded.
APA already has a one-third interest in Envestra and manages its gas network, which spans the eastern states and supplies 1.2 million gas consumers.
The merger will see South Australia lose the headquarters of another listed entity, with APA planning to merge all head office functions directly into its own unit in Sydney if the deal is consummated.
Envestra shares rallied 6.5¢ to close at 112.5¢, finishing slightly higher than their notional value under the takeover terms. APA shares fell 15¢ to $6.23.
Frequently Asked Questions about this Article…
APA has proposed a full takeover of Envestra by offering shares to Envestra shareholders, creating a combined gas distribution business. For investors, the deal matters because it would reshape assets and ownership in Australia’s gas network sector, concentrate more gas pipeline and reticulation operations under APA’s control, and trigger regulatory review that could affect deal timing and outcome.
APA is offering 0.1678 APA shares for each Envestra share. That exchange ratio places a notional value of $1.10 on each Envestra share and values Envestra at about $1.98 billion under the proposal.
Before the proposal, APA already manages Envestra’s assets and owns about one-third of Envestra’s shares. Envestra’s network supplies around 1.2 million gas consumers in the eastern states and major cities like Adelaide, Melbourne and Brisbane.
The ACCC is aware of the APA proposal and routinely reviews transactions that could restrict competition. Industry observers have raised competition concerns because the deal could involve vertical integration—APA would both haul wholesale gas and supply retailers—so the ACCC review will be an important hurdle for the transaction.
Some observers worry the merger creates vertical integration risks since APA would control long‑distance pipelines and retail supply networks, potentially reducing competition. APA’s managing director Mick McCormack, however, said he does not expect competition issues that would cause concern for the ACCC.
On the announcement, Envestra shares rose 6.5 cents to close at 112.5 cents, finishing slightly above the notional offer value. APA shares fell 15 cents to $6.23.
APA argued a full merger makes sense because Envestra faces high capital demands over the coming years. APA said a larger combined business would have better access to international capital markets for funding, which is important in this capital‑intensive industry. Envestra recently raised $160 million and has about $1.3 billion of capital spend planned over the next few years.
If the deal proceeds, APA plans to merge Envestra’s head office functions into its own Sydney unit, which would mean South Australia could lose another listed entity’s headquarters. The transaction would also further consolidate management of gas networks under APA’s operations.
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