Strike Energy takes on Gina Rinehart’s Hancock with new bid for Warrego

Strike Energy returns to the takeover battle it started, with a new bid for Warrego Energy it says trumps the offer from Gina Rinehart’s Hancock.

Strike Energy is looking to wrap up the takeover battle for Warrego Energy it started more than a month ago with a knockout offer it hopes will trump a bid on the table from Gina Rinehart.

If successful, Strike’s move would create a force in gas valued at more than a billion dollars – well up on the combined valuation before the process kicked off – and, Strike says, paving the way for the co-ordinated development of the Erregulla province in the Perth Basin.

Warrego had been quietly holding talks with several potential suitors late in the year, with the bidding war became public in November when Strike pitched an offer at 0.775 Strike shares for each Warrego share – an offer that was expected to be endorsed by the Warrego board.

The announcement which followed was more muted in its enthusiasm, with its ASX release at the time failing to endorse the bid, noting it was “undertaking due diligence on Strike in order to determine whether to recommend a transaction to its shareholders’’.

Lying in wait was Beach Energy, backed by billionaire Kerry Stokes whose Seven Group Holdings owns a 30 per cent stake.

Late the next day, Beach announced its own 20c per share cash bid – to be topped up with any money raised from the sale of Warrego’s Spanish assets – at the time higher than the Strike bid.

Warrego board backed the bid – although it was later accused by some investors later accused the company of rushing into a deal.

The company said it had been investigating a potential “change of control transaction’’ for the company for “many months’’ before striking the deal with Beach, “and had granted non-exclusive due diligence access to a number of parties during that period, including Strike and Beach’’.

The Warrego board had managed to get Strike to up its offer from 0.7142 shares to 0.775 shares, and nudged Beach up from 17c.

Gina Rinehart and Garry Korte at the CEO Magazine 2022 Executive Of The Year Awards in Sydney. Picture: Brendon Thorne/Getty Images

Meanwhile, behind the scenes, Strike had been talking to shareholders, and on December 7, revealed it had struck share swap deals with various Warrego investors which would take it from an 8.2 per cent holding to 19.9 per cent, and make it the company’s largest single shareholder.

This was backed up with the most recent announcement on Monday – that as well as upping its bid to one for one, Strike had secured another circa 13 per cent of commitments from Warrego shareholders, albeit subject to a superior offer being made.

Strike said Regal Funds Management (9.82 per cent), Harvest Lane Asset Management (1.84 per cent), and companies owned by David and Leesa Rooke (1.04 per cent) had given it “statements of intention” indicating they would accept the Strike bid in the absence of a superior proposal.

Strike’s move means it has its foot on 32.6 per cent of Warrego shares, and it matched Hancock’s “no minimum acceptance” provision, meaning each company has now committed to buying any shares it is offered.

This could result in each owning large chunks of Warrego, while not securing full control.

Strike on Monday was talking up the merits of it gaining control of more than half of the shares, saying if it did so, “Strike will endeavour to take advantage of the potential operational synergies of a co-ordinated development of the Greater Erregulla region’’.

“This may create value for both Warrego shareholders and Strike shareholders and may provide an opportunity to accelerate development of the West Erregulla gas field and potentially allow for its integration with Strike’s South Erregulla and Mid West low carbon manufacturing precinct.’’

Strike had previously flagged that if a competitor took over Warrego, it would have to reassess the pace of its development plans in the region. Strike told Warrego shareholders on Monday that it itself could be the subject of a takeover play – an opportunity investors would be giving up should they take the offer from Hancock, a private company.

“Accepting Strike’s offer will not preclude Warrego shareholders from receiving any further change of control premium in the event a takeover proposal is ultimately received for Strike following successful close of Strike’s offer,’’ the company said. “By accepting Hancock’s revised offer, 100 per cent of the potential upside arising from the development of Warrego’s projects would be retained by Hancock.’’

Strike managing director Stuart Nicholls said his company continued to believe that a combination of the two entities was the best way forward for the Perth Basin. “We intend to put this offer directly to the shareholders of Warrego to give them the opportunity to participate in the clear value creation we can see from this transaction,’’ Mr Nicholls said. “It will also provide them with access to an enhanced equity market presence, greater liquidity and a stronger share register.

“Regardless of the recommendation of the Warrego board of directors, we trust the Warrego shareholders to recognise the inherent value of their existing interest in West Erregulla and the potential enhancement to that value arising out of a combination of the two companies.”

Warrego said on Monday it was expecting a bidder’s statement from Strike before the end of the calendar year, and there would then be a 14 day period before the offer could open.

Meanwhile, the company is preparing its target’s statement in response to the Hancock bid, which is expected to be sent to shareholders by December 29.

“Shareholders are advised to take no action in relation to either the Hancock takeover offer or the Strike takeover offer until they have considered the target’s statement,’’ Warrego said on Monday.

Earl, Credit Suisse analyst Saul Kavonic told clients in a research note that “we see more to come’’ on the takeover front, “with all Perth Basin players potentially to be put in play’’. “And Santos and Mitsui could wait in the wings to acquire the acquirers,’’ he said. “Building four gas processing plants in the same basin was always ridiculous and sanity is prevailing with M&A to lead to a more efficient infrastructure.

“We consider it possible Perth Basin players, such as Warrego, Strike, Beach, Talon and Norwest Energy may be consolidated in the next few years,” he said.

Mr Kavonic’s prediction has been borne out, with the Chris Ellison-backed Mineral Resources last week launching a $403m scrip bid for Norwest. MinRes already owns 20 per cent of Norwest and last week offered one of its own shares for 1367 Norwest shares – valuing the company’s stock at 6c.

Mineral Resources managing director Chris Ellison. Picture: Supplied

Mr Ellison has flagged using the gas from Norwest’s Lockyer Deeps project to move into downstream manufacturing of fertilisers – urea and ammonia – rather than selling the gas not needed for its own domestic operations into overseas markets. Adding fertilisers to the company’s plans could turn its chemical business into a fifth leg for MinRes, which already runs one of Western Australia’s biggest mining services companies, mines iron ore and lithium, and is exploring for gas.

Also on Monday, Strike said it locked in a $153m gas financing package with Macquarie Bank to refinance $33m in drawn and undrawn debt, provide $40m in new debt to support drilling and appraisal at South Erregulla, and an $80m facility for Erregulla domestic gas development.

Strike shares closed up 0.5c, or 1.5 per cent, at 34c. Warrego rose 2c, or 6.7 per cent, to close Monday at 32c.

Originally published as Strike Energy takes on Gina Rinehart’s Hancock with new bid for Warrego