Australia's Sino Gas & Energy Holdings Ltd. agreed May 30 to a A$530 million (US$401 million) takeover offer from U.S. private equity (PE) firm Lone Star Fund, saying the risks the company faces in China justified putting the bid to a vote.
Lone Star is betting on two large unconventional gas projects in China, where gas demand is soaring, and where, after many years of work, Sino Gas & Energy only recently won the first of several approvals needed to develop its projects.
Sino Gas said its shareholders will receive A$0.25 per share, a 19% premium to its close on May 29 on the Australian Stock Exchange (ASX).
Lone Star declined to comment on the offer.
The cash offer provides shareholders with "cash certain value now versus the future risks and uncertainties associated with the business," Sino Gas Managing Director Glenn Corrie told analysts and investors on a teleconference.
Brokers with price targets on Sino Gas at least 20% above the offer price were surprised the board had unanimously recommended Lone Star's offer.
"We have previously highlighted the potential upside as Sino Gas de-risks and moves to being cash flow positive by 2020, thus we can only conclude there are greater risks the board is aware of than we have modeled," Macquarie analysts said in a note.
Small investors who have backed the company for years and just saw it secure some long-awaited agreements, like a recent production sharing contract with Chinese oil giant CNOOC Ltd., were unimpressed with the offer.
"Private equity doesn't invest unless they expect to get outsized returns. Why should we be giving that away?" Craig Lindner, a private investor, told Corrie on the teleconference, adding he would be voting against the offer.
Sino Gas shares rose as much as 21% before easing to trade up 14% at A$0.24, suggesting investors don't expect a higher bid to emerge. Its shares have strongly outperformed a flat ASX energy index this year, surging 35% to close on May 30.
Shareholders are expected to vote on the offer, which needs approval from 75% of votes cast to proceed, in late August or September.
RELATED: Battle Intensifies For Australia's AWE
Lone Star made an unsuccessful $311 million bid two years ago for Australian gas producer AWE Ltd., which was taken over earlier this year by Japan's Mitsui & Co. for $470 million. (US$1 = A$1.3229)
Recommended Reading
TotalEnergies Cements Oman Partnership with Marsa LNG Project
2024-04-22 - Marsa LNG is expected to start production by first quarter 2028 with TotalEnergies holding 80% interest in the project and Oman National Oil Co. holding 20%.
Occidental to Divest Some Permian Assets after Closing CrownRock Deal
2024-02-21 - Occidental CEO Vicki Hollub said plans to divest non-core Permian assets would come after closing the pending acquisition of CrownRock — but reports have since emerged that the company is considering selling its share of Western Midstream Partners, valued at about $20 billion, according to Reuters.
NOG Closes Utica Shale, Delaware Basin Acquisitions
2024-02-05 - Northern Oil and Gas’ Utica deal marks the entry of the non-op E&P in the shale play while it’s Delaware Basin acquisition extends its footprint in the Permian.
Vital Energy Again Ups Interest in Acquired Permian Assets
2024-02-06 - Vital Energy added even more working interests in Permian Basin assets acquired from Henry Energy LP last year at a purchase price discounted versus recent deals, an analyst said.
California Resources Corp., Aera Energy to Combine in $2.1B Merger
2024-02-07 - The announced combination between California Resources and Aera Energy comes one year after Exxon and Shell closed the sale of Aera to a German asset manager for $4 billion.