Hong Kong's CK Infrastructure Holdings has made a $12.98 billion takeover offer for Australia's biggest gas pipeline company, APA Group, offering a hefty 33 per cent premium to tap into a hot gas market.
The deal would make the private Chinese firm the major player in Australia's east coast gas pipeline network, but comes as soaring gas and power prices have caused political blowback, raising concerns it could run into competition and national security hurdles.
CK Infrastructure, leading a consortium with CK Asset Holdings and Power Assets Holdings, offered $11 cash per stapled security, well above APA's last close of $8.27 and its record high of $9.90 hit a year ago.
"It's a decent premium. What it basically shows is there is a disconnect between how the private market wants to value these assets and how the stock market values them," said Jason Teh, chief investment officer at Vertium Asset Management, which does not own shares in APA.
Part of the CK Hutchison Holdings ports to telecoms conglomerate, CK Infrastructure already owns a swathe of gas and power assets across Australia, and last year bought energy networks operator DUET Group for $7.4 billion.
APA said on Wednesday it would evaluate the bid and agreed to open its books for the consortium to review, while leaving the door open to other potential suitors. It told shareholders to take no action.
"Based on the indicative price of $11.00 cash per stapled security, the APA Board considers that it is in the best interests of APA's securityholders to engage further with the consortium," APA said in a statement.
The CKI-led consortium welcomed APA's decision to enter talks, saying the all-cash proposal provided a "compelling opportunity" for security holders to realise value.
APA's biggest shareholder, UniSuper, which owns a 16.1 percent stake, did not comment on the offer price, but chief investment officer, John Pearce, said it fully supported allowing CKI to conduct due diligence.
APA's shares rose 21 per cent to $10.00, holding below the offer price amid uncertainty over whether Australia's Foreign Investment Review Board and Australian Competition and Consumer Commission would clear the deal. CK Infrastructure said it was already talking to them.
The competition watchdog said on Wednesday it would take about 12 weeks to review the deal after receiving more information.
APA dominates gas transportation on Australia's east coast, where the southeastern states are increasingly dependent on supply from Queensland in the north, and where CK Infrastructure already owns a gas distribution network.
JPMorgan analysts said they doubted any rival bids would emerge but said Foreign Investment Review Board approval "may be challenging considering APA's dominant position in gas pipelines on the east coast."
Macquarie analysts, however, said plans by other companies to build liquefied natural gas import terminals might ease concerns about lack of gas competition.
The foreign investment watchdog last year allowed CK Infrastructure's purchase of the DUET Group, which owns the Dampier to Bunbury gas pipeline in Western Australia.
To avert competition concerns, CK Infrastructure has offered to divest all of APA's pipeline assets in Western Australia.
Macquarie is advising APA, while Morgan Stanley is advising the CK Infrastructure-led consortium.