Strike Energy’s takeover play for Warrego still in play as share gains plump up the offer
Strike Energy is talking up the benefits of its takeover bid for Warrego Energy, which is now ahead of the Beach bid on price after a big share price jump.
Warrego Energy shares notched up a second day of gains on Tuesday after Strike Energy lodged a counter offer against a bid from Beach Energy, which has the backing of the target’s board.
Stock in the Perth Basin-focused Warrego added another half a cent on Tuesday to close at 21.5c, following the all-scrip merger proposal from Strike – disclosed on Thursday – and a 20c per share cash bid from Beach, revealed late Friday and endorsed by Warrego’s board on Monday.
But with the tussle for Warrego also bolstering interest in Strike itself, the latter’s scrip bid has surpassed the value of Beach’s cash offer. Strike was quick to point this out on Tuesday, after its stock gained 12 per cent one day earlier.
At the Monday closing price of 28c, Strike’s offer valued its Warrego bid at 21.7c per share, and while the Strike share price fell back to 26.5c on Tuesday, this still values its offer at 20.5c.
Euroz Hartleys issued a research note to clients on Tuesday suggesting Strike itself was deeply undervalued, adding that it should have a valuation of 51c per share.
“We reaffirm our Buy valuation of Strike based on where the market cap currently sits in comparison to the Beach/Warrego look through valuation of Strike’s gas in the ground as well as our sum-of-parts valuation which both represent significant value uplift,’’ the broker said in the note.
“There is plenty of merit in Strike acquiring Warrego and therefore we can see merit for another bid from Strike for Warrego coming. Not only as it improves the valuation of Strike’s own gas in the ground, it also provides Strike with 100 per cent controlling interest of Greater Erregulla gas.’’
Strike also noted that its shareholders might be eligible for rollover tax relief in the event a scrip-based deal goes through, potentially providing more benefits for Warrego shareholders.
Strike said in a statement to the ASX it was “disappointed” its 50:50 joint venture partner in the West Erregulla region of Western Australia had endorsed the Beach bid. “Strike is disappointed with Warrego’s decision as it continues to believe its proposal represents a superior result for Warrego shareholders,’’ Strike told the ASX.
“Strike’s proposed merger would create a uniquely positioned ASX-listed investment opportunity with a dominant position in the Perth Basin armed with its sustainable energy and fertiliser development strategy, which would allow Warrego shareholders to participate in the joint upside across the portfolio.’’
Strike said it was “considering its available strategic options’’.
The company also hinted that should Beach’s bid win, it might shift focus away from the West Erregulla project.
“Strike has a high degree of flexibility to ensure that value driven outcomes are prioritised for Strike shareholders,’’ it said.
“As such, if and whilst West Erregulla undergoes proposed changes to its joint venture structure, Strike may look to accelerate its domestic gas production from its 100 per cent owned South Erregulla gas field whilst preserving residual feed gas and West Erregulla gas resources for the Project Haber fertiliser development.
“Strike’s merger proposal provides continued and focused ownership and exposure to the exciting and emerging Perth Basin.
“Beach Energy’s proposal, on the other hand, places a final and terminal value on Warrego that will deprive its shareholders of the chance to unlock the inherent latent value and synergies that would be created through the merger of joint venture partners whilst at the same time crystallising taxation events for Warrego shareholders.’’
Shares in Norwest Energy, which is also focused on the Perth Basin, added 4.3 per cent to 4.9c on Tuesday while Talon Energy stock was steady at 18c after adding 9.1 per cent on Monday.
Strike, which owns 8.2 per cent of Warrego’s shares on offer, initially engaged with the Warrego board in mid-September, offering 0.7142 Strike shares for each Warrego share. This was increased first to 0.7521 and then 0.775 shares.
Beach is scheduled to hold its annual meeting on Wednesday.
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