Hastings brushes off APA offer

TAKEOVER target Hastings Diversified yesterday launched a spirited rejection of the unwelcome takeover offer from rival APA, arguing it seriously undervalues units in the pipeline owner.

By InvestSMART · 21 Jan 2012

By InvestSMART ·
21 Jan 2012

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TAKEOVER target Hastings Diversified yesterday launched a spirited rejection of the unwelcome takeover offer from rival APA, arguing it seriously undervalues units in the pipeline owner.

But Hastings did not provide unitholders with an independent valuation to back up its claim.

APA has launched a cash and scrip offer for Hastings Diversified, with unit holders to receive 0.326 APA shares and 50? cash for each unit held.

At the time the offer was launched, in mid-December, it placed a value of $2 on each Hastings unit, which was based on the APA share price at the time of $4.60.

APA shares closed yesterday at $4.54, down 7?, with Hastings Diversified units at $1.995, down 0.5?.

In its target statement released yesterday, Hastings said the offer undervalues the company, is highly opportunistic since it comes at a time when revenues are set to grow strongly, while also arguing that the offer is "highly conditional and uncertain".

The upgrading of part of its pipeline network in Queensland, has led to a $460 million long-term contract, believed to be with Santos, with other contracts likely to be finalised for further revenue growth.

Existing contracts indicate Hastings will enjoy annual compound growth averaging 15.5 per cent in the five years to fiscal 2015, the target said.

The bid fails to appropriately value the company's "significant contracted revenues of over $4 billion which will be earned over the next 23 years and [its] significant revenue growth in the short term and beyond," Hastings said.

But the lack of an independent valuation in the target statement was criticised by APA.

"We can only assume no independent expert's report has been provided because [Hastings] feared the report would confirm APA's offer was within the value range," APA managing director Mick McCormack said.

"The offer is far too low and not in the realms of being one we would entertain," Andrew Day, chief executive of Hastings Funds Management, said. "If it was, we would have brought in an outside valuation."

Hastings also claimed to have achieved a better return than APA, pointing to an assessment by Mercer that its unitholders had enjoyed a total return of 9.78 per cent annually since it went public, more than double the ASX 200 Industrials Accumulation Index return of 4.50 per cent over the same period and APA's 5.69 per cent return.

Hastings also said it was negotiating a refinancing and studying expansion opportunities that may improve operating cash flows "in the short to medium term".

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Frequently Asked Questions about this Article…

What exactly is APA's takeover offer for Hastings Diversified units?

APA has made a cash-and-scrip takeover offer for Hastings Diversified: holders would receive 0.326 APA shares plus $0.50 cash for each Hastings unit. When the offer was launched in mid-December it valued each Hastings unit at about $2, based on APA’s share price of $4.60 at that time.

Why has Hastings Diversified rejected APA's takeover offer?

Hastings says the APA offer undervalues the business and is opportunistic because it comes at a time when Hastings expects strong revenue growth. The company also criticized the offer as ‘highly conditional and uncertain’ and argued it fails to appropriately value over $4 billion of contracted revenues that will be earned over the next 23 years.

Did Hastings provide an independent valuation to support its rejection of the APA offer?

No. Hastings did not include an independent expert valuation in its target statement. APA publicly criticized Hastings for the absence of an independent valuation, suggesting Hastings may have avoided one because it feared the report would support APA’s offer range.

How did APA respond to Hastings’ comments about the takeover bid?

APA’s managing director Mick McCormack criticized Hastings for not providing an independent expert’s report and implied that Hastings may have feared such a report would show APA’s offer was within a fair value range.

What contract wins and revenue growth does Hastings cite to justify a higher valuation?

Hastings points to pipeline upgrades in Queensland that led to a long-term contract worth about $460 million (believed to be with Santos) and says existing contracted revenues exceed $4 billion to be earned over the next 23 years. The target statement also noted existing contracts imply an average compound annual revenue growth of about 15.5% in the five years to fiscal 2015.

How have Hastings’ historical returns compared with APA and the ASX 200 Industrials index?

Hastings cited an assessment by Mercer showing its unitholders achieved a total return of 9.78% per annum since listing—more than double the ASX 200 Industrials Accumulation Index return of 4.50% over the same period and higher than APA’s 5.69% return.

What were the recent market prices for APA shares and Hastings units mentioned in the article?

The article notes APA shares closed at $4.54 and Hastings Diversified units closed at $1.995 on the referenced trading day. The offer was based on an earlier APA price of $4.60 when valuing Hastings units at roughly $2 each.

What next steps is Hastings considering to boost value for unitholders?

Hastings said it is negotiating a refinancing and studying expansion opportunities that it believes may improve operating cash flows in the short to medium term, which it argues will enhance the company’s value beyond the current APA offer.