Senex lets cat out of bag on AWE plan, then walks away
Cooper Basin oil and gas explorer and developer Senex Energy unnerved investors on Monday with an apparently ill-thought-out plan to expand by acquisition by buying fellow mid-sized explorer AWE.
The proposal was withdrawn before it was made formal, prompting investors to dump Senex shares, which fell by a hefty 8.4 per cent to close at the day's low of 70.5¢. AWE rallied by a strong 8.5 per cent to $1.27.
Before trading began, Senex withdrew a proposal to merge the two entities via a share swap, intending to offer 1.9 Senex shares for each share held in AWE.
Senex had hoped to quietly engage with AWE, but because its plans for what it hoped would be a friendly merger were flushed out before it could conduct due diligence, it decided to walk.
Senex chief executive Ian Davies said marrying the group's Cooper Basin assets with AWE's emerging cash flow, especially from its offshore assets, would have created growth options.
A merged entity would have had a presence in three onshore basins - the Cooper and Perth basins in Australia, and the Eagle Ford shale play in the US - all of which are attractive, he said.
"With the Cooper Basin and the other AWE onshore plays offering high growth potential, marrying that with its cash flow from offshore projects" was the attraction, Mr Davies said.
"We wanted to have a conversation and conduct due diligence," he said.
"There was nothing hostile and nothing unfriendly" in our approach.
"There was no bid; there was no offer capable of being accepted," the chief executive said.
The move, described by analysts as a "left field approach", took investors by surprise, in part because Mr Davies has been running the company for more than three years and had not flagged acquisitions.
"He's just trying to grow the company" with the bid, Wilson HTM analyst James Redfern said.
"It didn't work. It obviously spooked the market. It's now back to the drawing board."
A Senex adviser said the approach had been made public unnecessarily, and that had prompted the company to walk away from a proposal.
Mr Redfern speculated that Senex, by hoping to formally merge with AWE, was seeking to create a group valued at about $1.5 billion, which would almost put it on a par with Beach Energy, which is worth about $1.7 billion and which also has operations in the Cooper Basin.