Comparative review
Recommendation
Often condemned as boring, operators of gas pipelines have seen more than their fair share of action lately. First Hastings Diversified was taken over; now an offer has been made for gas distributor Envestra. At the centre of both bids is APA Group, the largest pipeline operator in Australia. APA has offered 0.1678 APA securities for each Envestra security and a 3 cent dividend, which together values Envestra at $1.98bn, or $1.10 per security.
The price is a 4% premium to Envestra’s pre-bid price and a 10% premium to the past month of trading. In takeover world, that’s not large. Perhaps APA’s existing 33% shareholding in Envestra explains the slim premium. The proposal has been warmly received by Envestra and, regulators permitting, is likely to proceed.
We still need more information from APA before we can draw conclusions about the deal. The company may want to sell assets or raise additional equity to reduce Envestra’s $2.2bn debt.
If it is successful, APA would add large distribution networks in Victoria, South Australia and Queensland to its existing portfolio of transmission pipelines and increase its dominance as a local hauler of gas. We’ll wait to hear the details before passing judgment. Until then, APA’s share price is up 6% since On pipelines and poles (Hold – $5.95) and we’re sticking with HOLD. Investors in Envestra should likewise stay put and wait for APA management to make their case. HOLD.