The lukewarm reception to APA Group Ltd's bid for Envestra Ltd has extended to a key investor who has questioned the value of APA's bid, according to The Australian Financial Review.
The response thus far to APA's bid could force APA to lift its offer by as much as 10 cents per share if it hopes to be successful, which could risk APA's ability to realise value from the deal.
Envestra investor RARE Infrastructure, which holds a 2.2% stake in Envestra as well as a 2.4% stake in APA, said APA's bid looked “light” and failed to offer a premium for the gas distributor.
“There is upside to Envestra in our valuation,” RARE portfolio manager David Maywald told the AFR.
“The deal would give APA access to cash flows and tax benefits with little control-premium paid.”
APA's offer values Envestra at about $1.04 a share, including the company's three cent-per-share dividend, when Envestra closed Wednesday at $1.12, down half a cent.
Envestra's second-largest shareholder, Hong Kong's Cheung Kong Infrastructure, will be key to determining whether the APA offer stands a chance.
CKI, which owns about 19% of Envestra, declined to comment on the bid, according to the AFR.