APA Group swift to resume US acquisition hunt as bidder still circles
Nov 21, 2018
Gas pipeline owner APA Group has swiftly resumed a chase for a $4 billion acquisition in the US after the government’s vetoing of Hong Kong suitor CK Group’s $13 billion takeover, despite other potential bidders still waiting in the wings.
Chief executive Mick McCormack voiced frustration and disappointment about the decision by Treasurer Josh Frydenberg to block the merger after all the work done by the board, his team and others to “get the job done”.
“It’s a bit of frustration because you go through all of that effort and it evaporates in a puff of dust,” he said.
CK Infrastructure, the lead in the bid consortium, is understood to have been engaging with the Foreign Investment Review Board as late as Tuesday afternoon as it sought to address the government’s concerns, which had been laid out in preliminary advice two weeks ago.
Several alternatives are thought to have been considered, including keeping part of the merged company listed on the Australian Securities Exchange, or other structures involving different parts of APA’s portfolio, which includes gas power plants and wind farms, as well as gas pipelines.
FIRB is understood to have remained split on whether to allow the takeover, leaving the decision to reject it firmly in the hands of the Treasurer just months ahead of an election and amid broad public concern about overseas acquisitions of strategic infrastructure assets.
The blocking of the $11-a-share CKI bid has left the door open for alternative bidders, including IFM Investors which is known to have kept a close eye on proceedings and has shown interest in APA but at a lower price.
But Mr McCormack showed no appetite to seek an alternative bid: “From day one, APA has never been for sale,” he said. “Eleven dollars was considered compelling by APA board. I won’t deny that. How any other party wishes to interpret what’s happened, good luck, I just go back to my day job.”
Chairman Michael Fraser described APA’s business as “robust and resilient” despite being subject to a takeover offer for almost six months.
“With the CKI consortium proposal not proceeding, the way ahead for APA is very clear – we will continue to work on ‘APA’s Plan A’, which is the successful growth strategy that we have employed for almost two decades,” Mr Fraser said.
APA shares plunged earlier this month when Mr Frydenberg declared he was inclined to reject the CKI-APA merger, which would have passed almost all of the country’s gas transmission capacity into foreign hands. He reiterated in late Tuesday’s statement that the decision wasn’t a reflection on CK Group, a significant investor in Australia’s gas and power sector, but was due to the fact that the deal “would result in a single foreign company group having sole ownership and control over Australia’s most significant gas transmission business.”
The shares slipped another 1.4 per cent on Wednesday, closing at $8.61.
But despite the premium offered by CKI, the takeover deal wasn’t popular with many of APA’s retail shareholders, who liked the secure, growing distributions.
Mr McCormack said APA had been “inundated” with emails and phone calls on Wednesday morning by retail shareholders that were “pretty chuffed” that it had been blocked.
“That’s been the strength of APA from day one and not only that continuation of distributions but it’s grown every year,” he said.
The lobbing of the offer by CKI several months ago had forced APA to stop work on pursuing a US acquisition, but that work promptly resumed after the Treasurer’s decision came through.
Mr McCormack said the preferred deal would be an outright acquisition of a gas pipeline owner with its own management team, with an enterprise value in the range of $3 billion-$4 billion.
“We want to launch a platform over there so we want to buy something outright that has a management team there that we can develop and go off and do more,” he said.
APA also reassured investors on earnings, reiterating guidance for earnings before interest, tax and depreciation for 2018-19 of $1.55 billion-$1.575 billion, taking into into account costs related to the abandoned takeover.
The payout to shareholders is expected to be about 46.5¢ per security plus franking credits, if available.
Standard & Poor’s removed APA from CreditWatch positive as a result of the collapse of the deal, reaffirming the rating on the group at BBB with a stable outlook.