Watchdog approves bid for Hastings

THE takeover tussle for control of pipeline owner Hastings Diversified has turned up another notch with the decision by the competition watchdog, the ACCC, not to oppose a bid by APA Group for the company.

By InvestSMART · 20 Jul 2012

By InvestSMART ·
20 Jul 2012

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The decision paves the way for APA to revise its bid for Hastings Diversified, which will likely close part of the gap between APA's present offer with that of the rival bid that has emerged from local and Canadian investors.

Following the Australian Competition and Consumer Commission's decision, APA said it was now considering its options with regards to its offer for Hastings Diversified.

APA's offer, which was launched late last year, has been subject to lengthy scrutiny by the ACCC, which has been concerned about a possible lessening of competition if the bid succeeds.

Hastings Diversified controls key pipelines from the Cooper Basin in central Australia to Queensland and South Australia.

APA controls key pipelines from Moomba to Sydney as well as into Brisbane, and from Victoria to Adelaide. Control of Hastings Diversified will give APA a dominant position in gas transportation into eastern Australia. It also owns pipelines in Western Australia and the Northern Territory.

To allay the ACCC's concerns, APA undertook to sell the Moomba-Adelaide pipeline if its bid succeeds, as well as ensuring other pipeline connections could be made to its Queensland assets in the future.

The ACCC accepted the first undertaking, but did not see the need for the latter, due in part to the "countervailing power of the major gas producers" in the gas market, the ACCC chairman, Rod Sims said.

The ACCC said it was not convinced the acquisition would result in higher prices for shipping gas or make it more difficult to develop competing pipelines, although it was concerned about supplies to Adelaide. "The ACCC had significant concerns that, absent the undertaking [to sell the Moomba-Adelaide pipeline], APA would own all of the pipelines servicing Moomba and have a significant interest in both of the pipelines servicing Adelaide and that this would substantially lessen competition in the supply of gas transmission pipeline services and ancillary services," Mr Sims said.

Selling the Adelaide pipeline "addresses these primary competition concerns by ensuring there is a separate owner of gas pipelines servicing Adelaide and Moomba", he said. The boom in export gas projects being developed in Queensland has boosted the value of the Queensland pipeline owned by Hastings, since it links up with APA's pipeline, which supplies Brisbane.

APA is offering 0.326 APA shares plus 50? in cash for each Hastings share held, less any dividends paid by the target during the bid. APA already has a 20 per cent holding.

Another bid has been outlined by Pipeline Partners Australia, which is a consortium of local and Canadian investors. It is offering $2.325 in cash. It has an 8 per cent stake in the target.

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Frequently Asked Questions about this Article…

What did the ACCC decide about APA Group’s bid for Hastings Diversified?

The Australian Competition and Consumer Commission (ACCC) decided not to oppose APA Group’s bid for Hastings Diversified after APA offered undertakings. The ACCC accepted APA’s commitment to sell the Moomba–Adelaide pipeline and said it was not convinced the takeover would raise gas shipping prices or block competing pipelines, although it had particular concerns about supplies to Adelaide that the sale addresses.

What is APA Group offering in its takeover bid for Hastings Diversified?

According to the article, APA is offering 0.326 APA shares plus 50? in cash for each Hastings share held, less any dividends paid by Hastings during the bid. The article also notes APA already holds about 20% of Hastings.

Who is the rival bidder and what is their offer for Hastings Diversified?

The rival bidder is Pipeline Partners Australia, a consortium of local and Canadian investors. The consortium is offering $2.325 in cash per Hastings share and held an approximate 8% stake in the company at the time of the article.

How would APA’s acquisition of Hastings change pipeline control and competition in eastern Australia?

If APA gained control of Hastings, it would add Hastings’ pipelines (linking the Cooper Basin to Queensland and South Australia) to APA’s existing network (including Moomba–Sydney, links into Brisbane, and Victoria–Adelaide). That combination would give APA a very strong position in gas transportation into eastern Australia, which prompted ACCC scrutiny over potential reduced competition—particularly for Adelaide supply.

Why did APA agree to sell the Moomba–Adelaide pipeline as part of its undertaking to the ACCC?

The ACCC was concerned that, without the sale, APA would own all pipelines servicing Moomba and have a significant interest in pipelines servicing Adelaide, which could substantially lessen competition for gas transmission and related services. Selling the Adelaide pipeline was accepted by the ACCC as addressing those primary competition concerns by ensuring a separate owner for those services.

What role did the ACCC’s reference to the 'countervailing power of the major gas producers' play in the decision?

The ACCC said it did not require APA to provide an additional undertaking about future pipeline connections because it partly relied on the 'countervailing power of the major gas producers'—meaning the influence of large gas producers in the market was seen as a factor that would limit any potential market power arising from the acquisition.

What does the ACCC decision mean for Hastings shareholders right now?

The ACCC decision paves the way for APA to revise its offer for Hastings, and the article says that could close part of the gap between APA’s present offer and the rival cash bid from Pipeline Partners. APA has said it is considering its options following the decision, so shareholders should expect possible revised proposals.

How should everyday investors follow this takeover tussle for Hastings Diversified?

Keep an eye on announcements from APA, Hastings Diversified and Pipeline Partners Australia for any revised offers or transactions (including the proposed sale of the Moomba–Adelaide pipeline). The ACCC decision removed a key regulatory hurdle, so investors should watch for updated bid terms and any official shareholder communications before making decisions.