Hong Kong’s CK Infrastructure Holdings (1038.HK) has made a A$12.98 billion ($9.8 billion) takeover offer for Australian gas pipeline company APA Group (APA.AX), offering a hefty 33 percent premium to tap into a hot gas market.
The deal would expand the private Chinese firm’s pipeline and electricity transmission holdings in Australia at a time when soaring gas and power prices have become a big political issue.
CK Infrastructure, leading a consortium with CK Asset Holdings (1113.HK) and Power Assets Holdings (0006.HK), offered A$11 cash per stapled security, APA said, well above APA’s last close of A$8.27 and its record high of A$9.90 hit a year ago.
“It’s a decent premium. What it basically shows is there is a disconnect between how the private market wants to value these assets and how the stock market values them,” said Jason Teh, Chief Investment Officer at Vertium Asset Management, which does not own shares in APA.
APA said on Wednesday it would evaluate the bid and agreed to open its books for the consortium to review, while leaving the door open to other potential suitors. It told shareholders to take no action.
“Based on the indicative price of A$11.00 cash per stapled security, the APA Board considers that it is in the best interests of APA’s security holders to engage further with the consortium,” APA said in a statement.
APA is one of three gas pipeline companies which dominate transportation of gas on Australia’s east coast, where the southeastern states are increasingly dependent on supply from Queensland in the north.
The deal would be subject to approval from Australia’s Foreign Investment Review Board as well as the Australian Competition and Consumer Commission, both of which APA said CK Infrastructure has already consulted
“Currently, the process is still at a preliminary stage, and…the transaction may or may not be undertaken,” CK Infrastructure Deputy Chairman Edmond Ip said in a statement.
The foreign investment watchdog last year allowed CK Infrastructure to take over energy networks operator DUET Group, which owns the Dampier to Bunbury gas pipeline in Western Australia, for A$7.4 billion.
To avert competition concerns on the APA bid, CK Infrastructure has offered to divest all of APA’s pipeline assets in Western Australia.
Teh said one issue that has weighed on APA’s share price has been concern that Australia’s competition watchdog might start capping the rates APA can charge on some of its pipelines that are unregulated.
Macquarie is advising APA, APA spokesman Patrick Sinclair said.
