It’s a gas: APA trumps rival Brookfield in $10bn AusNet battle
A bidding war has erupted for power grid owner AusNet Services, with APA and Brookfield jostling for separate takeover deals.
A fractious bidding war has broken out for Victorian power grid owner AusNet Services after gas pipeline giant APA Group emerged with a higher $10bn bid pitched as keeping sensitive infrastructure under Australian ownership, but failed to dislodge Canada’s Brookfield from pole position in the takeover battle.
APA’s $2.60 a share bid in cash and scrip tops Brookfield’s $2.50 a share cash offer, but the Canadian player already has its nose in front after securing an eight week period of exclusive due diligence.
APA was frustrated AusNet opened its books to Brookfield given it had lobbed its first $2.32 a share buyout tilt on September 1, one day after the Canadian’s maiden offer, and then made AusNet aware on September 16 it would return with a higher bid.
Instead AusNet – a major infrastructure player which owns and operates the Victorian electricity transmission network along with gas and power distribution – sided with Brookfield given it had a firm cash offer on the table.
AusNet is still weighing the merits of APA’s higher bid and left the door open for the pair to hold talks after Brookfield’s due diligence process ends.
The Canadian bid faces a high bar for Foreign Investment Review Board approval given a tougher national security test which applies to sensitive energy assets while competition issues could also prove a hurdle for APA given its dominant gas market position.
APA trumpeted its ability to keep vital infrastructure in Australian hands and said the Brookfield deal would mean 100 per cent of Victoria’s electricity distribution and transmission infrastructure would be foreign owned.
“Unlike many OECD countries, Australia lacks a locally-owned and controlled energy utility with capabilities across critical energy infrastructure and with the size and strength to partner with government and the community to deliver the energy transition,” APA chief executive Rob Wheals said.
Foreign investment restrictions could present a major hurdle for Brookfield, UBS said.
“We believe Australia’s Cyber & Infrastructure Security Centre may consider electricity transmission one of the most critical types of infrastructure from a national security perspective potentially applying a very high bar for FIRB approval,” UBS analyst Tom Allen said.
“This is especially so given the planned investment in Victoria’s electricity transmission to support Australia’s energy transition.”
APA may face its own competition concerns. It already owns 15,000kms of gas pipelines worth $21bn across Australia and delivers half the nation’s gas with significant assets in Victoria.
“It’s an issue that would need to be looked at,” ACCC chairman Rod Sims told The Australian.
APA’s offer for AusNet is split between $1.82 a share in cash and .0878 APA shares for each AusNet share. That structure means the value of APA’s offer will change depending on its share price.
The prospect of a $1.5bn equity raising to seal a deal appeared to have put some investors offside with its shares declining by 4.7 per cent to $8.46, clipping the value of its AusNet offer back to $2.56 a share.
The APA bid saw AusNet shares leap a further 9.8 per cent to $2.59 after surging 19 per cent on Monday.
While APA’s shares will need to fall further to $7.80 to be equivalent to Brookfield’s offer, according to broker Morgans, it still faces a sales job with AusNet to spruik its takeover offer.
“APA will also need to convince AusNet’s board that its share price will remain sufficiently strong to be superior to Brookfield’s all-cash proposal,” Morgans said.
While APA has previously flagged a move into the electricity sector, the deal represents a “big price” to pivot away from gas and contains risk.
“Regulated electricity networks is a sector that APA has historically shied away from given the regulatory risks, lower rates of return, and annuity style earnings. Educating the market – and particularly APA’s very long-term investors – of the benefits of the transaction, including quantifying the synergy benefits, will be critical,” Morgans said.
The Canadian giant’s tilt came after two prior and unsuccessful bids of $2.35 on August 30 and then a subsequent offer of $2.45.
AusNet Services is 32.3 per cent owned by Singapore Power, 19.9 per cent owned by State Grid of China, and around 48 per cent publicly owned.
APA has Aquasia, Goldman Sachs, JP Morgan, and Macquarie on board as financial advisers and King & Wood Mallesons as legal adviser.
The proposed deal comes amid a recent flurry of listed infrastructure deals: just last month Spark Infrastructure accepted a $5.2bn takeover from a consortium led by KKR while Sydney Airport has opened its books for a $23.6bn offer from a group led by IFM.
Also on Monday it was confirmed that Transurban and its investment partners have paid $11.1bn to buy the remaining 49 per cent stake in the WestConnex motorway from the NSW government.
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