bid for arrow energy, eastern star basks

http://www.theaustralian.com.au/business/opinion/investors-expect-shell-to-lift-bid-for-arrow-energy-eastern-star-basks/story-e6frg9io-1225838155442

John Durie From: The Australian March 08, 2010 12:00PM Increase Text Size Decrease Text Size Print Email Share Add to Digg Add to del.icio.us Add to Facebook Add to Kwoff Add to Myspace Add to Newsvine What are these?
EITHER David Casey at Eastern Star is wowing them on his international roadshow, or word of Shell’s imminent move on Arrow Energy set the speculators into a frenzy, with the stock price jumping 9.1 per cent last Friday and double normal trading volume of 6.8 million shares.

With Shell confirming its offer to Arrow Energy this morning, Eastern Star Gas was up another 6.3 per cent to 76 cents a share in morning trade.

ESG is yet to respond to inquiries about just what is driving its share price, but given it claims to have the biggest coal-seam gas acreage in town, it would seem in part that the share-price move is based on the usual consolidation trade that sends coal-seam stock prices soaring every time a major comes into the market.

Eastern Star controls the so called Narrabri project and is 19 per cent owned by Santos.

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Related Coverage
Shell, PetroChina in bid for Arrow The Australian, 16 minutes ago
Aussie stocks soar in early trade Adelaide Now, 21 minutes ago
Shell, PetroChina bid $3.3bn for Arrow The Australian, 1 hour ago
$3.3 billion bid for Arrow Energy Courier Mail, 1 hour ago
Arrow aims to cash in on LNG Courier Mail, 17 Feb 2010
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Shells move on Arrow was a matter of when rather than if, given it has a small stake in its exploration arm plus a stake in its coal seam assets.

The difference this time is, Shell arrived in town with a partner, PetroChina, which comes with an implied threat - if it wants to sell its gas to China then it better accept the takeover offer.

At $4.45 a share, it comes at a 28 per cent premium to market price, which is but a starting price in talks that will not doubt be aimed at getting a higher bid.

The 44 per cent increase in Arrows stock price today to $5 a share after the $4.45 bid shows the market expects Shell and PetroChina to lift its bid.

Shell and PetroChina are being advised by Morgan Stanley and Rothschild, and Arrow has Citigroup and UBS.

Arrow is fast finalising its Gladstone LNG plant which, at 1.5 million tonnes, is small compared to those being planned by BG and Santos/Petronas.

The missing link of course is the customer and, while BG is its own customer, Arrow has signed up with the shipper, Golar, suggesting it will chase spot sales.

PetroChina represents valuable customer muscle and by implication Arrow will know if it wants to sell gas to the company, then acceptance of the takeover deal is a good way of guaranteeing a home for its output.

Santos has partnered with Petronas, which is also a natural buyer.
Just why Shell moved now and not earlier is not known, but it seems that, with Arrow starting to finalise terms on its plant, it felt the timing was right.

It has tied closely with some of its executives working with Arrow so the two companies know each other well.

One Arrow shareholder, New Hope, with a 10 per cent stake, is a perceived seller, which may have also triggered Shells timing.

Each new giant footstep into Queenslands coal seam industry marks one further stage towards consolidation of the industry into a few hands.

This of course also makes the likes of ESG all the more valuable and, if you knew Shell was going to move on Arrow today, it may have looked a bit obvious buying in to the target, so why not go for the next best thing?

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