Senex acquisition would give POSCO International a way to break into the Australian market

Senex became cleaner and more attractive to suitors after the business sold its oil assets in the Cooper Basin last year, making the company a pure gas play.

Senex is understood to have held takeover talks in the past year with Australian rivals Santos and Beach Energy before POSCO emerged with offers as high as $836m for the company.

It is understood that the Queenland-based gas producer was eager to find a buyer late last year, according to sources, with the turning point being its decision to pursue the expansion of its Atlas gas project in Queensland’s Surat Basin.

Run by Ian Davies, Senex has been considered a logical takeover target for Santos, for which synergies exist, or Beach Energy, with industry consolidation expected to be on the cards.

However, Beach Energy has some challenges and is not thought to be in a position for mergers and acquisitions, while Santos is in the middle of trying to finalise its $21bn merger deal, which puts it out of the running.

Some believe this may be the reason POSCO has decided to strike with a higher price now, although most on Monday saw its move to close in on Senex as completely out of left field.

While POSCO is known more as a steel distributor, embarking on this transaction is its listed subsidiary POSCO International, which has a small energy business and has been expanding in Asia.

The understanding is that growth has been on the agenda, and Senex is a way to break into the Australian market.

This is as POSCO looks to secure energy supply for the group’s other activities such as steel manufacturing that is an alternative to coal, which is being shunned by the market due to environmental concerns.

However, Senex produces mostly gas for the domestic market.

Senex became cleaner and more attractive to suitors after the business sold its oil assets in the Cooper Basin last year, making the company a pure gas play.

It has also finished all its major capital spending, taking out big risks for future investors.

The situation now begs the question, could Cooper Energy and Beach Energy could be targets next?

Cooper’s assets are considered to have less certainty surrounding production while Beach’s writedowns to its Cooper Basin reserves are likely to keep suitors at bay.

Still, M&A activity continues to boom in the energy sector, with Woodside said to be close to finalising a deal to buy BHP’s energy business while the tie up between two of the country’s largest oil and gas players – Oil Search and Santos – nears a conclusion.

Deals are happening as consolidation becomes more urgent with investors backing away from groups involved in oil, coal and gas due to a focus toward clean fuels.

Senex has tapped Macquarie Capital, Rothschild and law firm Clayton Utz while POSCO International is working with Deutsche Bank as it carries out exclusive due diligence.

The South Korean major has offered $4.40 per share for the business following an earlier proposal of $4 on July 30 and $4.20 on August 27.

The understanding is that it is likely to emerge with a higher offer that could be recommended by the board, with a deal to be finalised next year.

The latest revised offer represents a 40 per cent premium to the average trading price over 30 days since September 2.

If the offer proceeds it is likely to be by way of an off-market takeover which would be subject to a 50.1 per cent minimum acceptance and FIRB approval.