Shock, AWE as merger deal runs out of gas
But the proposal was withdrawn before it was made formal, prompting investors to dump Senex shares.
Senex fell a heavy 8.4 per cent to close at the day's low of 70.5¢, with AWE rallying a handy 8.5 per cent to $1.27.
Before the start of trading on Monday, 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 engage quietly with AWE, but because its plans for what it hoped would be a friendly merger were flushed out before it could conduct due diligence on the target, it decided to walk.
Senex chief executive Ian Davies said marrying his 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 along with the Eagle Ford shale play in the US - which were all 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. There was nothing hostile and nothing unfriendly" in our approach, he said.
"There was no bid; there was no offer capable of being accepted."
But the move, described by analysts as a "left-field approach", surprised investors, 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."
Mr Redfern speculated that Senex, by merging with AWE, hoped to create a group valued at about $1.5 billion, which would almost put it on a par with Beach Energy, worth about $1.7 billion.
Senex has a range of assets in the Cooper Basin typically hosting small fields which need heavy exploration spending, analysts said.
The approach was made public when it did not need to be, one Senex adviser said, prompting Senex to walk.
Frequently Asked Questions about this Article…
Senex withdrew its merger proposal with AWE because the plans for a friendly merger were revealed before they could conduct due diligence on AWE. This led to a decision to walk away from the proposal.
The market reacted negatively to Senex's withdrawn merger proposal, with Senex shares falling by 8.4% to 70.5¢. In contrast, AWE shares rallied by 8.5% to $1.27.
The intended structure of the merger was a share swap, where Senex planned to offer 1.9 Senex shares for each AWE share.
Senex saw growth opportunities in merging with AWE by combining its Cooper Basin assets with AWE's emerging cash flow, particularly from offshore assets. This would have created a presence in three onshore basins, offering high-growth potential.
The merger proposal was considered a 'left-field approach' because it surprised investors, as Senex's CEO Ian Davies had not previously indicated plans for acquisitions during his tenure.
The potential valuation of the merged entity of Senex and AWE was speculated to be around $1.5 billion, which would have brought it close to the valuation of Beach Energy at $1.7 billion.
Senex faces challenges with its current assets in the Cooper Basin, which typically host small fields requiring heavy exploration spending.
Analysts described the merger proposal as a surprise and noted that it spooked the market. They speculated that Senex was trying to grow the company but acknowledged that the plan did not work, leading to a return to the drawing board.
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