BG Group seems hell-bent on proving its resolve and determination to expand into Australia’s fledgling coal seam methane gas industry with an A$796m ($534m) takeover bid launched Monday for Pure Energy Resources.
The bid – which is conditional on approval from Australia’s Foreign Investment Review Board and minimum acceptance of 50.1 per cent – trumped a rival offer from Australia’s Arrow Energy, Pure Energy’s fellow Queensland-based company and a partner of Royal Dutch Shell in various ventures.
Some commentators warn that BG, by gatecrashing what appeared to be a cosy deal, risks creating a confrontation with Arrow’s ‘big oil’ ally, Shell.
But BG seems to be in a hurry to expand in this relatively underdeveloped field in Australia. Its bid for Pure comes after BG last October agreed to buy Queensland Gas Company in an A$5.6bn deal, which the FT describes as the “latest example of consolidation among smaller energy companies prompted by the falling price of oil and financial market turmoil”.
BG is now in the late stages of integrating Queensland Gas.
BG has made repeated attempts to become a lead player in Australia’s industry for coal seam methane gas – gas found in coal deposits – not least with its ill-fated A$13.8bn bid for Origin Energy, an Australian group with extensive coal-bed methane assets.
After a fraught bid process, BG was rejected by Origin’s board and the Australian group subsequently agreed a joint venture with ConocoPhillips, the US oil group, for A$9.6bn.
This time, BG seems determined to succeed with Pure Energy, saying its cash offer was at implied premium of 19 per cent compared to Arrow’s offer, which was worth A$5.39 based on Fridays closing prices. Underlining its interest, BG said it had taken a 10 per cent holding in Pure Energy’s shares “from a range of shareholders” and has claimed the support of a fraction under 50 per cent of Pure’s register, including a 19.9 per cent shareholding of its own, a 14.9 per cent stake held by Shell and 11 per cent by Pure’s directors, according to BusinessSpectator. On Monday it said its offer would give Pure shareholders “the certainty of cash at a time of heightened uncertainty in world equity and financial markets”.
Arrow, meanwhile, which is already a major shareholder in Pure Energy, agreed last year to join forces with Shell to develop projects in Australia and international markets; Shell has also agreed to invest up to A$776m to buy 30 per cent of Arrow’s coal bed methane acreage in Queensland and 10 per cent of its international assets.
As the FT reported, Arrow may take profits on its investment in Pure Energy. Moreover, analysts have suggested Arrow may become a takeover target itself.
BG meanwhile has left its run late, although it “self-evidently believes its cash will prove more persuasive than Arrow’s mixture of cash and scrip” and its strategy appears quite straightforward, says BusinessSpectator’s Stephen Bartholomeusz:
The Arrow offer is dependent on the value of the scrip component. BG’s stake means that it can prevent the current offer from succeeding.
Related links:
Shell’s last chance – BusinessSpectator
BG Group bids for Australian gas company – FT