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?.