AusNet investor slams Brookfield takeover decision as APA sidelined
A major shareholder in power grid owner AusNet Services has criticised the decision to hand Brookfield eight weeks of exclusive due diligence and sideline APA Group.
A major shareholder in power grid owner AusNet Services has criticised the board’s decision to hand Brookfield eight weeks of exclusive due diligence and sideline APA Group despite APA lodging a higher $10bn takeover bid.
APA’s $2.60-a-share bid in cash and scrip tops Brookfield’s $2.50-a-share cash offer, but the Canadian player has its nose in front after securing an eight-week period of exclusive due diligence.
Major AusNet investor Martin Currie Australia questioned why AusNet had made its decision and said it was open to the APA bid, which it regards as superior.
“We are massively surprised that you give exclusive due diligence to one party when there’s an auction going on. Why would you lock out APA for eight weeks?” Martin Currie Australia chief investment officer Reece Birtles told The Australian.
“Why they needed to jump to that point is unclear and then I would have thought, especially subsequently now that APA’s offer is out, it’s quite clear that it’s superior.”
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 that it would return with a higher bid.
Instead, AusNet – a major infrastructure player that 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 and it was able to lure a bump to $2.50 based on giving it exclusive status.
Both companies should have been given due diligence at the same time, according to Martin Currie, which owns a 3.5 per cent stake in AusNet.
“Why would you still have rebuffed APA from due diligence over the same period. It doesn’t seem from anything we know that the break fees are significant to have to move it from exclusive to both parties doing due diligence,” Mr Birtles said.
“What we’re finding a little curious is almost not acknowledging that the APA offer is superior. It’s a lot of cash so it doesn’t leave much share price risk in it.
“It allows for capital gains tax rollover relief for Australian shareholders, so that’s of value, and it has less Foreign Investment Review Board risk, because it’s a domestic bidder. I would add that we like this electrification theme and we can retain exposure to it via APA. So receiving some shares in APA is a good thing, not a bad thing.”
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 FIRB approval given a tougher national security test that applies to sensitive energy assets, while competition issues could also prove a hurdle for APA given its dominant gas market position.
UBS said APA may return with a higher takeover offer after its $10bn counter-bid failed to pack enough punch to break Brookfield’s exclusivity period.
“We believe APA’s strategy is to amplify the Foreign Investment Review Board approval risk of the Brookfield bid and apply pressure on AusNet’s board to consider breaking its exclusivity arrangement with Brookfield. While the latter has been unsuccessful thus far, we believe it is possible APA may submit a stronger bid for AusNet over the coming weeks,” UBS analyst Tom Allen said.
Brookfield may also be able to roll AusNet’s major shareholders – Singapore Power and China’s State Grid – into a new unlisted entity, which may not be possible under the APA offer, according to UBS.
AusNet fell 2.7 per cent to $2.52. APA rose 1.1 per cent to $8.55.
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