Antares receives an offer. Again.

We’ve been here before. A year ago, Antares Energy received an unsolicited bid to purchase its Permian Basin assets for US$300m. After initially accepting the offer, better than expected drilling results on nearby shales convinced the board to reject it and develop its fields independently. We backed that decision and upgraded the stock in Antares upping the ante (Speculative Buy - $0.47). Now, one year on, we find ourselves in the same position.

Once again, Antares has received an unsolicited ‘letter of interest’ for US$300m. Once again, the bidder is unknown. And, once again, management is engaging the party to flush out a sale. The share price has risen on the news and, although it is 32% higher than when we upgraded the stock, we are unimpressed. Management cannot accept a bid for the same price they denounced a few months ago and keep their reputations intact. If US$300m is a fair price now, why didn’t the board accept the same offer a year ago? The only reason to consider a bid that low is if Antares cannot roll over its debt. We think the company's assets could be worth about $400m. The market appears more sceptical, valuing the equity and debt together at $200m, well below the offer price.

With major shareholder Lone Star agitating on the sidelines, this situation is likely to resolve itself quickly. Shareholders, including your analyst, would have received numerous calls from Lone Star and management lobbying for support in a meeting scheduled for 22 July, though our preference remains for the company to develop its assets independently.

The commotion has done no harm to the share price, which is up 24% since Antares calls general meeting (Speculative Buy - $0.50). But with the price now well above the Buy price in our recommendation guide, it’s time to downgrade to HOLD.

Note: The Growth portfolio owns shares in Antares Energy.