Hastings gives APA offer the short shrift

APA's unwelcome bid for rival pipeline owner and operator Hastings Diversified has failed at its first hurdle, with the mooted offer rejected before it has even got off the ground.

By InvestSMART · 16 Dec 2011

By InvestSMART ·
16 Dec 2011

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APA's unwelcome bid for rival pipeline owner and operator Hastings Diversified has failed at its first hurdle, with the mooted offer rejected before it has even got off the ground.

Hastings Diversified, which owns pipelines connecting Moomba with south-east Queensland and Adelaide, received a bid this week from APA, valuing it at $1.06 billion.

APA will offer 0.326 APA shares and 50? in cash per Hastings Diversified share, valuing the target shares at $2.

In rejecting the offer yesterday, Hastings Diversified said it undervalued the company "and does not account for [the] significant cash flow growth that is both contracted and prospective".

The APA offer is conditional on winning clearance from the Australian Competition and Consumer Commission, as well as the Foreign Investment Review Board, since APA is one-fifth held by Malaysian oil and gas company Petronas, which is also a large shareholder in one of the export gas projects planned for Queensland.

Analysts were united in highlighting the fact the takeover price undervalued Hastings Diversified while also diluting APA's earnings per share if it succeeded.

"The bid multiple of 12.5 times is below the historical average of 14 times, so there is a risk that APA may have to increase its bid," Merrill Lynch said in a note to clients.

APA already has a 20 per cent stake in Hastings Diversified, which would make it difficult for a rival bidder to emerge unless it were to place its assets on the block, although this is not considered likely.

The chief executive of Hastings Diversified, Colin Atkin, said no discussions had been held with APA about the offer.

"It's puzzling," he said. "If you were serious, you'd put something compelling in front of shareholders."

APA shares continued to weaken after news of the bid, falling another 5? yesterday to close at $4.52, with Hastings Diversified moving off the day's low of $1.87 to close at $1.93, up 3?.

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Frequently Asked Questions about this Article…

What was APA's takeover offer for Hastings Diversified and how much was the deal worth?

APA proposed a scrip‑and‑cash bid for Hastings Diversified consisting of 0.326 APA shares plus a cash component (reported in the article as '50?') per Hastings share. The offer valued Hastings shares at about $2 each and the whole company at roughly $1.06 billion.

Why did Hastings Diversified reject APA's takeover offer?

Hastings Diversified rejected the proposal because its board said the offer undervalued the company and did not take into account the "significant cash flow growth that is both contracted and prospective," according to the article.

What regulatory approvals would APA need if it tried to buy Hastings Diversified?

The article says APA's offer was conditional on winning clearance from the Australian Competition and Consumer Commission (ACCC) and approval from the Foreign Investment Review Board (FIRB), partly because APA is one‑fifth owned by Malaysian oil and gas company Petronas.

How did analysts view the APA bid for Hastings Diversified?

Analysts cited in the article said the takeover price looked to undervalue Hastings and would dilute APA's earnings per share if it succeeded. Merrill Lynch noted the bid multiple was about 12.5 times versus a historical average of 14 times, suggesting the price might need to be increased.

Does APA already own any of Hastings Diversified?

Yes. The article reports that APA already held a 20% stake in Hastings Diversified, which could make it harder for a rival bidder to emerge unless that stake or other assets were sold.

What did Hastings Diversified’s chief executive say about the unsolicited bid?

Hastings Diversified CEO Colin Atkin said no discussions had been held with APA about the offer and described the approach as "puzzling," suggesting that a more serious bid would have presented something more compelling to shareholders.

How did the market react to news of the APA bid?

Following the bid announcement, APA shares weakened further, falling another 5% to close at $4.52, while Hastings Diversified shares recovered from the day's low of $1.87 to close at $1.93, up about 3% from that low, according to the article.

With the bid rejected, what are the likely next steps for everyday investors to watch?

Based on the article, investors should watch for any improved or revised offers from APA (or other bidders), regulatory developments from the ACCC and FIRB if a bid proceeds, commentary from analysts about valuation and EPS dilution, and any changes in APA’s existing 20% stake in Hastings that could affect rival bids.