APA Group receives $13bn takeover offer from CK Infrastructure-led consortium

APA shares have jumped more than 20pc after the Victor Li-chaired CK Infrastructure unveiled a $13bn takeover offer.

APA Group CEO Mick McCormack. (Hollie Adams/The Australian)

One of Australia’s largest energy infrastructure businesses, APA Group, is in play, with Hong Kong powerhouse CK Infrastructure lobbing a $13 billion takeover bid for the company that owns some of the country’s most valuable assets.

The $11 per share cash bid will be an interesting test for the Foreign Investment Review Board and the Australian Competition and Consumer Commission after CK Infrastructure bought APA’s (APA) listed rival Duet Group for more than $7bn in 2016.

Sceptics say the deal will be a tough ask from a regulatory perspective and CK Infrastructure’s willingness to divest a number of assets should it secure control of APA offers some acknowledgment of this from the bidder’s perspective.

APA’s shares jumped $1.95, or 24 per cent, to $10.22 as of 11.32am (AEST) but this was still below the offer price because of concerns a deal may not be completed.

The company’s board has not yet made any recommendation on the offer, but has granted APA due diligence on a non exclusive basis.

Morgan Stanley is working for CK Infrastructure while Macquarie Capital is working for APA.

APA shares closed at $8.27 in the previous trading session.

The move is one of the first from the new chairman of Hong Kong’s CK Infrastructure, to expand the empire built by his billionaire father Li Ka-shing.

The elder Mr Li was known to be a fan of buying assets that offered stable returns and the APA bid shows his son Victor Li is continuing that strategy. It also demonstrates that Victor Li is committed to expanding an empire that includes ports and property businesses in China, electric utilities in Australia and mobile phone networks in the UK. Li Ka-shing retired last month.

The CK Infrastructure consortium says it has already held talks with the Australian Competition and Consumer Commission and the Foreign Investment Review Board.

The ACCC said it would soon start a 12-week public review of the proposal.

“APA and the CKI consortium members both own a significant portfolio of gas pipeline and associated assets,” an ACCC spokeswoman said this morning.

“We will investigate the impact the proposed acquisition will have on competition for gas transportation, and the impact on upstream and downstream gas markets. We will also be looking at the impact on competition for the construction of new pipelines in the future.”

The ACCC noted the CKI consortium had proposed to sell certain WA assets.

“The ACCC will be making market inquiries and consulting with industry stakeholders on both the proposed acquisition and the proposed divestiture as part of its public review,” the spokeswoman said.

Ord Minnett analysts said they saw regulatory hurdles as the major risk to the deal, with a low probability of a competing bid.

“Approval from the FIRB may be challenging considering APA’s dominant position in gas pipelines on the east coast,” Ord Minnett said in a note to clients.

APA Group chairman Michael Fraser said the APA board would continue to evaluate the proposal.

“The board believes APA has a very attractive business and is well positioned to continue delivering strong results,” he said.

APA said in its statement that the consortium has proposed a divestment package which would include APA’s interests in the Goldfields Gas Pipeline, Parmelia Gas Pipeline, Mondarra Gas Storage Facility and a stand-alone management team.

The proposal is not conditional on these proposed divestments occurring before completion of the transaction, APA said.

“Based on the indicative price of $11 cash per stapled security, the APA board considers that it is in the best interests of APA’s securityholders to engage further with the consortium,” APA said.

APA said it had entered into a confidentiality agreement with CK Infrastructure following its bid, which is a 33 per cent premium to the APA share price.

One market analyst said the ACCC’s decision surrounding Transurban’s acquisition of toll road operator WestConnex will be critical to the CK Infrastructure bid for APA.

Should the ACCC block a WestConnex bid by Transurban, the competition watchdog would be unlikely to allow the CK Infrastructure bid to proceed, sources said.

A market analyst said that FIRB would likely be unhappy about ownership of APA by CKI, but it remained unclear whether it would block the deal.

In 2016, the government blocked a deal to buy a majority stake in Ausgrid on national security grounds. The purchase was sought by State Grid Corp. of China and CK Infrastructure, which was then called Cheung Kong Infrastructure.

Should a rival Australian consortium make a play for APA, a decision by FIRB on the takeover would not be likely for an extended period of time.

With Dow Jones