Strike Energy calls for an independent arbiter to rule on the value of takeover target Warrego

Strike Energy’s boss can’t understand why Warrego’s founder and managing director is leaving millions on the table, and says an independent report should be commissioned.

Strike Energy managing director Stuart Nicholls. Picture: Colin Murty

Strike Energy managing director Stuart Nicholls says it “beggars belief” that the co-founders of takeover target Warrego Energy would leave millions on the table by accepting rival Hancock Energy’s cash offer - which is even further out of the money after a late share price surge on Wednesday.

Warrego shares were trading in the red for much of Wednesday, dipping half a cent to 30.5c and languishing there for most of the session, before a late buying plunge pushed the stock to a close of 34.5c, up 11.3 per cent, with more than 26 million shares traded.

The identity of the buyer - if it is a sole entity or individual - is yet to be revealed, however the stock price surge puts Warrego’s value higher than Strike’s one for one scrip takeover bid - now valued at 33.5c, up 1c on Wednesday - and more than 20 per cent higher than Hancock’s 28c per share cash bid.

Mr Nicholls told The Australian on Wednesday he finds it “very hard to reconcile” Warrego managing director Dennis Donald – one of the founders who owns an 11.37 per cent stake in Warrego – recommending shareholders accept the 28c per share Hancock bid against Strike’s currently higher scrip offer, especially in the absence of an independent expert’s report into the value of Warrego.

After a takeover battle which kicked off in early November with Strike making a scrip offer valuing Warrego at 18.6c per share – a bid quickly trumped by a 20c per share cash bid from Beach Energy – the field has thinned to Gina Rinehart’s Hancock Energy – which is offering 28c a share, plus Strike, with an improved one for one scrip bid.

With Strike shares currently trading at 33.5c and Warrego shareholders potentially able to claim rollover tax relief and avoid paying capital gains tax if that bid wins the day, its offer currently looks more attractive than the Hancock bid, and as previously mentioned, Warrego’s own share price currently trumps both offers.

Last week, Warrego released a target’s statement which documented a split at the board level. The company’s chair, Greg Columbus, recommended shareholders accept the Strike offer, while Mr Donald and fellow directors Mark Routh and Michael Atkins backed the Hancock bid.

The latter directors emphasised the “certainty” inherent in accepting payment in cash rather than Strike scrip and the possibility that Strike shares would fall, while Mr Columbus pointed out that Strike itself could be the target of further takeover action, potentially presenting even more upside for shareholders.

Warrego has not commissioned an independent expert’s report on the value of its shares to date and is under no obligation to do so.

Mr Nicholls, speaking to The Australian on Wednesday, said it “beggars belief” that Mr Donald, and his co-founder David MacNiven who has also committed to sell to Hancock, would leave “millions” on the table by selling into a bid which was less than what was being offered.

“I would say this is an unfortunate situation where there is a high degree of asymmetry between what the vast majority of shareholders are looking for, and what Mr Donald and Duncan MacNiven ultimately wanted, which was to monetise their life’s work,’’ Mr Nicholls said.

“Dennis has talked quite extensively about the ‘certainty’ of taking cash, but I definitely feel that with the amount of corporate interest that is currently (focused) on the Perth Basin, there is a high degree of likelihood that taking Strike shares will result in a positive increase in one’s investment.’’

“I think Warrego shareholders have a right to ask a few questions here. There was no independent expert’s report done by the board so how can anyone recommend anything really, because they don’t have a handle on what the value of their business is.”

Strike and Warrego are joint venture partners in the West Erregulla gas project in the Perth Basin, while Strike also has a 100 per cent interest in the neighbouring South Erregulla project.

Strike aims to consolidate the projects into a Greater Erregulla gas play.

The Australian Energy Market Operator’s recently released Gas Statement of Opportunities for Western Australia, which covers the 10 year period out to 2032, forecasts a “tight supply demand balance” for the next six years, “with demand up to 5 per cent higher than potential supply’’.

From 2030 onwards, the supply deficit is expected to extend further, to a shortfall of about 16 per cent per year.

In this context, large energy users, such as Hancock’s iron ore arm, and iron ore and lithium player Mineral Resources which has its own bid in the market for smaller Perth Basin player Norwest Energy, are looking to shore up supply. Analysts expect ongoing consolidation among local players including Strike, Warrego, Norwest and Talon Energy.

Mr Nicholls said Strike believed it had “probably the premiere Perth Basin portfolio at the moment’’.

“We operate 3000sq km of acreage, we’re the operator in every one of our permits and most of our permits are at 100 per cent (ownership),’’ he said. “It really gives that very focused exposure to the Perth Basin which clearly through the amount of corporate activity that’s been going on is becoming a very, very key focal point for large energy users or future energy users in this state.’’

Strike currently owns 19.9 per cent of Warrego, plus ”intention statements” for shareholders to sell it another 20.5 per cent of the company’s stock, bringing its stake to 40.4 per cent. This is before its offer has opened which will happen once its bidder’s statement is lodged. Hancock this week put out a substantial shareholder notice indicating it now owns 25.91 per cent of Warrego.

Mr Nicholls said Strike is confident it can achieve “positive control’’ of Warrego, being more than a 50 per cent stake. “And we see that as the beginning of the one plus one equals three transaction of why we’re looking to consolidate with Warrego,” he said.

“That provides us a great platform to be able to generate synergies across our Greater Erregulla portfolio through the integration of our upstream infrastructure and our gas processing infrastructure at South Erregulla where we’re looking to construct the gas plant.

“There is a lot of inherent, latent value that can be unlocked through the consolidation of intent and assets in that Greater Erregulla region.’’

Mr Donald is in the UK and could not be contacted for comment on Wednesday.

Originally published as Strike Energy calls for an independent arbiter to rule on the value of takeover target Warrego