Alinta rebuffs $3.5bn bid, lines up bankers for float

Alinta’s 2015 revenue

The private equity and hedge fund owners of Alinta Energy are believed to have rebuffed a $3.5 billion offer for the entire company from an Australian-backed consortium, as it now readies itself for a listing on the Australian Securities Exchange, aided by investment bank Macquarie Capital.

Apparently, the asking price was at least $5bn.

Macquarie Capital, UBS and Goldman Sachs have been appointed joint global co-ordinators, while Credit Suisse and Morgan Stanley all are joint lead managers.

It is now understood AGL Energy, the listed APA Group and at least one other party, believed to be Marubeni, offered $3.5bn for Alinta when it was subject to a sale process through Lazard. This was before being told of the $5bn asking price.

The latest details emerged just weeks after a sales process for Alinta collapsed.

Frontrunner China Huadian walked away from a prospective deal before lobbying a final bid, prompting moves by advisers to swiftly redirect their attention to a potential float.

Alinta’s lofty price expectations may have sprung from the recent divestment of renewable energy business Pacific Hydro for a hefty $3bn to the Chinese.

According to a flyer document for the earlier Lazard-run sales process, obtained yesterday by DataRoom, Alinta generates $2bn in revenue annually and $385m of earnings before interest, tax, depreciation and financial instruments.

Encompassing five of Australia’s six states as well as New Zealand, it is Australia’s fifth-largest privately owned generation portfolio and fourth-largest privately owned energy retailer.

The teaser says Alinta has 2000MW of generation capacity, about 800,000 electricity and gas retail customers and at least 360 employees in Australia and NZ.

It says the company has strong historical earnings growth, partly fuelled by a leading position in the West Australian gas retailing market, where it has about 90 per cent of the market share.

As the country’s largest contracted gas generation provider, Alinta also boasts of being Australia’s only gas fired generation portfolio, which is diversified by geography and customer.

Some believe Alinta is worth seven to eight times its EBITDAF (earnings before interest, tax, depreciation, amortisation, and fair value adjustments), which is consistent with the listed Pacific Energy, comparable for the generation business.

Analysts are betting equity investors could pay a multiple of about 7.5 or 8 times Alinta’s EBITDAF, which equates to a price of about $3bn, given AGL Energy trades on a multiple of about nine times earnings.

Owners TPG Capital and hedge funds such as York Capital and Centrebridge are moving to divest Alinta at a time gas remains in short supply in Australia.

Alinta counts BHP Billiton, Fortescue, Roy Hill, Rio Tinto, Origin Energy, AusNet, BlueScope and Hydro Tasmania as its contracted gas customers.

While it was initially thought that the company would list by Christmas, making it perhaps the largest float of the year, it is now said to be a 2017 deal.

Part of the reason why a listing this year is said to be a challenge is that the company needs to find new board members.

Chairman Mark Johnson, an investment banker at the Wesfarmers-owned advisory firm Gresham, is said to be not interested in becoming a chairman of a listed company. Other directors are on the board of Wesfarmers, which owns Kleenheat, a competitor to Alinta that recently entered the Perth gas market and has snapped up 10 per cent of the market share, creating a conflict of interest.

Should the float not proceed, some believe AGL and its backers may return to the table.

After the Australian consortium bid failed, AGL later lobbed a separate offer for just the more lucrative WA retail energy arm of Alinta, which is thought to be about five times its EBITDA of about $215m. This would equate to about $1.1bn. It is widely expected that AGL would buy the retail arm and China Huadian would take the remainder.

Elsewhere, Goldman Sachs yesterday promoted Marissa Freund and Olivia Brown to the roles of co-chief operating officers of the bank’s mergers and acquisitions division in Australia and New Zealand. The elevation of the two women follows the recent rise of banker Sarah Rennie to head of equity capital markets in the region.