Warrego Energy’s board split on the merits of competing takeover bids from Hancock and Strike

A majority of Warrego Energy’s board of directors recommend shareholders accept the Hancock Energy takeover bid - which is worth less than the company’s shares.

Warrego Energy’s board has split on the merits of competing takeover bids from Strike Energy and Hancock Energy - with three directors recommending accepting the Hancock bid, despite it being less than the current share price.

Businesswoman Gina Rinehart’s Hancock is currently offering 28c per share for Warrego, versus the share price on Friday of 30.7c, while Strike’s bid is a one for one scrip offer, with Strike shares changing hands for 31.5c.

Directors Michael Atkins, Mark Routh and Dennis Donald have recommended in the Warrego Energy target’s statement, released on Friday, that shareholders accept the Hancock bid, making the argument that Strike’s share price has been volatile and shareholders could be exposed to downside in the future.

They do acknowledge however that both the Warrego and Strike share price are currently higher than the Hancock bid.

Mr Donald, who co-founded Warrego and is the company’s managing director, owns 11.37 per cent of its stock. If he sold his stake into the Hancock bid, it would bring the latter’s stake to 25.91 per cent, based on a substantial shareholder notice lodged by Hancock this week, indicating it has moved to a 14.54 per cent stake in Warrego.

Mr Donald’s co-founder David MacNiven said earlier in December he would be committing his stake of 11.27 per cent to the Hancock bid.

Both of the co-founders sold down just more than six million shares each in Warrego in August for just 13.5c per share.

Strike currently owns 19.9 per cent of Warrego and has commitments accounting for another 20.5 per cent, bringing its stake to at least 40.4 per cent.

Strike said in its own statement on Friday that Warrego chairman Greg Columbus had indicated he’d sell his 3.18 per cent of Warrego stock into its bid, adding to Regal Funds Management’s 9.82 per cent.

In the target’s statement, the directors who recommend shareholders accept the Hancock offer say it provides “cash certain value” for their shares, pointing out that “the Strike share price has shown considerable variability, trading below 28c for extended periods over the past 12 months and trading as low as 21.5c as recently as 27 September 2022’’.

It does note however that the implied value of the Strike offer based on the three month volume-weighted average price is 30.3c, and shareholders could simply sell on market now for more than the value of the Hancock bid.

“Under the Strike offer, Warrego shareholders would be taking exposure to Strike’s other assets (being those assets other than the 50 per cent interest in West Erregulla which it has in common with Warrego),’’ the statement says.

“Those other Strike assets include Strike’s interest in the South Erregulla field, the

Walyering field and Strike’s proposed fertiliser plant (which it calls ‘Project Haber’).

“Those assets are subject to various risks, including development, financing, permitting and reserves risks.’’

While Strike’s bid brings with it the prospect of shareholders receiving rollover tax relief, and therefore not having to pay capital gains tax, the three directors say that this is reliant on Strike gaining acceptances for more than 80 per cent of the shares on offer.

Mr Atkins’ recommendation is less definitive than the other two directors’, saying “he wishes to emphasise that the decision is not clear cut, and that Warrego shareholders may, depending on their particular circumstances and risk appetite, wish to choose to accept the Strike offer (once open) over the Hancock offer, including in order to retain ongoing exposure to any potential future upside associated with Warrego’s and Strike’s assets.’’

Chairman Greg Columbus, who is recommending shareholders take the Strike bid, says “While accepting the Hancock offer may mean that Warrego shareholders will no longer be

exposed to the risks and uncertainties associated with Warrego’s assets, it also puts a final and

terminal value on their investment in Warrego and means that shareholders will forego any future potential upside associated with the development of the combined assets’’.

“”Strike may also be able to achieve operational synergies through the integration of West

Erregulla with Strike’s other operations, providing a large asset platform in a rising gas

market.

“If Warrego shareholders accept the Strike offer ... they will receive Strike shares, and may be able to participate in any potential operational synergies which are created, as a shareholder in Strike.’’

He also raises the possibility of further takeover plays for the combined company.

“A combined Warrego and Strike business could create a more substantial resource and energy

company on the ASX with potential upside, with Strike shares that would have an enhanced equity market presence, greater liquidity and potentially a stronger institutional share register, all of which could make the combined business a greater target for further takeover activity,’’ Mr Columbus says.

He also points out that there is additional potential upside from the company’s Spanish assets.

Hancock’s offer is currently scheduled to close on January 31.

Originally published as Warrego Energy’s board split on the merits of competing takeover bids from Hancock and Strike