Queensland Gas Shareholders Back AGL, Spurn Rival Bid

Queensland Gas Shareholders Back AGL, Spurn Rival Bid

Queensland Gas Co. shareholders approved AGL Energy Ltd.’s purchase of a stake in the Australian coal seam gas producer for A$324 million ($254 million), spurning a rival bid from a Societe Generale Asset Management unit.

AGL’s proposal, which includes a 20-year contract to buy fuel from the Brisbane-based company, was backed by more than 75 percent of shareholders, Queensland Gas Managing Director Richard Cottee said today. The deal guarantees a market for the company’s output and provides funds to expand, he said.

Competition for gas and power companies in Queensland is being driven by an annual 3.5 percent increase in energy demand, the quickest of any Australian state. By voting in favor of the AGL proposal, Queensland Gas shareholders rejected a rival A$812 million takeover bid from Societe Generale Asset’s TCW Group Inc. unit. Another suitor, Santos Ltd., had its bid blocked by the competition regulator last week.

“There’s tremendous corporate interest in the company and its assets, with its strategic corporate location in Queensland,” said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management in Sydney.

Shares in Queensland Gas fell 5.5 cents, or 3.6 percent, to A$1.48 on the exchange. Shares in Sydney-based AGL, Australia’s biggest electricity and gas retailer, fell 7 cents, or 0.5 percent, to A$15.61.

Increased Price

AGL earlier today raised the price of its offer for a 27.5 percent stake in Queensland Gas by 11 percent to A$1.60 a share from A$1.44 a share. TCW on Feb. 27 offered the equivalent of A$1.51 a share in cash and shares for the whole company.

Queensland Gas is being advised by JPMorgan Chase & Co. and ABN Morgans, while UBS AG is advising AGL.

The decision by Queensland Gas’s board to reject TCW’s bid and not to postpone the shareholder vote deprived shareholders to fully assess the merits of the competing offers, TCW said in an e-mailed statement. The actual value of AGL’s proposal remains unclear because Queensland Gas hasn’t revealed the commercial terms of the gas contract, it said.

“How could shareholders possibly assess the true value of the AGL proposal without knowing the details of this agreement?” TCW said in the statement. AGL and AGL Managing Director Paul Anthony “are to be congratulated because we believe they are the big winners from today’s decision,” said Blair Thomas, TCW managing director.

Below Cost

AGL said in December that under the terms of the transaction it would buy fuel from Queensland Gas at a price below its current average cost. The accord is for at least 540 petajoules (509 billion cubic feet) of gas up to as much as 740 petajoules.

The gas price under the agreement may be about A$2.50 a gigajoule, said Graeme Bethune, chief executive officer of EnergyQuest, an Adelaide-based consulting company. That would make it higher than Queensland Gas’s existing sales contracts and lower than AGL’s average gas purchase cost, he said.

At that price, the sales contract would be worth between about A$1.4 billion and A$1.9 billion. The price of the gas supply contract is “attractive,” Queensland Gas Chairman Robert Bryan told shareholders today.

“An important aspect of the whole transaction is the pricing of the contracts to AGL,” said John Colnan, senior resources analyst at Shaw Stockbroking Ltd. in Sydney. “If it is at the bottom end of expectations then considerable supply risk will now sit with existing QGC shareholders in trying to fulfill delivery of those volumes at what could be a sub-economic return.”

Share Buyback

Under AGL’s proposal, Queensland Gas will also offer to buy back shares from existing shareholders for between A$1.52 and A$1.79, Cottee said on a teleconference with reporters. The buyback will in theory allow one in three shareholders to sell stock into the buyback given assurances from major shareholders they won’t participate in it, he said.

“Anyone who wanted to get out of the company for a quick buck have had plenty of opportunity to get out for a quick buck over the last six months,” Cottee said.

Queensland Gas decided not to postpone the shareholder vote because AGL’s proposal was due to expire on March 4 and AGL refused to extend the deadline, Cottee said. Also, TCW’s offer included cash and preference shares and it was unclear what value would be placed on those shares, he said.

Securing Reserves

Adelaide-based Santos abandoned its takeover offer last week for Queensland Gas after the national competition regulator blocked the bid. It had been seeking to add reserves to help replace declining fields in central Australia’s Cooper Basin.

AGL, the biggest buyer of gas in eastern Australia, had its contracted supplies post-2012 cut when an Exxon Mobil Corp.-led proposal to pipe gas from Papua New Guinea to Australia was scrapped last month. AGL was to be the pipeline project’s biggest customer.

“It was really the large uncontracted reserves of QGC that Santos and AGL were fighting over to give either of them the upper edge going forward,” Shaw’s Colnan said. “AGL has now got into the market and got hold of some big, chunky reserves. AGL had to do the deal — it couldn’t let this deal not go through — in order to secure some large volume of cheap gas.”

Queensland Gas yesterday reported a 27.5 percent increase in gas reserves in southern Queensland to 883 petajoules and is aiming to reach 1,000 petajoules of reserves by August.

Source: www.bloomberg.com

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