The competition for securityof supply – Hancock/Warrego,Albemarle/Liontown andSQM/Azure
The competition for high quality assets was fierce thisyear. There were battles between shareholders and rivalbidders for lithium companies and gas assets. Oneplayer in particular emerged as a strategic acquirer –Hancock Prospecting took a 19.9% stake in Albemarle’sproposed takeover target, Liontown Resources, andwas the rival (and ultimately successful) bidder in thetussle for Warrego Energy, fending off Beach Energyand Strike Resources(?) (see details below).
The bidding war of strategically placed Warrego was particularly heated, involving a three way bidding contest between Hancock Energy (Hancock), Warrego’s joint venture partner Strike Energy Limited (Strike) and the Kerry Stokes backed Beach Energy Limited (Beach).
Warrego Energy Limited (Warrego) is an energy company with a portfolio of gas exploration interests in Australia and Spain, with its key assets being a number of exploration tenements and projects in the Perth Basin.
The bidding war commenced in earnest on 10 November 2022 when Strike submitted a non-binding and indicative proposal at 0.775 Strike shares per Warrego share.
On 14 November 2022 Warrego then announced that it had entered into a scheme implementation deed with Beach at A$0.20 per share, with a contingent consideration component linked to the sale of Warrego’s Spanish assets. On 30 November 2022, Hancock launched a takeover bid at A$0.23 per share which triggered the matching rights regime under Beach’s scheme implementation deed with Warrego. Beach ultimately declined to match when Hancock increased its offer price from A$0.23 to A$0.28 per share. On 23 December 2022, Strike launched its own takeover bid at one Strike share for each Warrego share.
A period of stand-off ensued in the following month punctuated by: • Hancock introducing an institutional acceptance facility whereby if it achieved acceptances from 40% or more shareholders the offer price would increase to A$0.36 per share; and • Mineral Resources Limited acquiring a strategic stake in 19.17% of Warrego.
Ultimately, Mineral Resources struck out the possibility of launching its own competing proposal, citing the massively inflated prices of assets in the Perth Basin and rolled into Hancock’s offer. The 40% acceptance condition was eventually met, and Hancock reached the 90% threshold to compulsorily acquire the remainder.
The transaction and stand-off between Strike and Hancockdemonstrates how macroeconomic factors can have asignificant influence on a competitive transaction. Prior toStrike’s initial approach in November 2022, Warrego shareswere trading at around 17 cents per share or below.The bidding war and associated M&A activity in the region(i.e. Mineral Resources' bid for Norwest Energy) causedthe share prices of all major players in the Perth Basin toclimb, with Warrego briefly touching 40 cents per shareand Strike shares likewise trading above its historicalprices. For Strike this provided an inherent upside to itsproposal and for a greater part of the bidding process theimplied value of the Strike proposal was higher than theHancock offer. From the perspective of the Warrego boardthis also created an internal difference in recommendationapproach. The majority of directors preferred the certaintyof Hancock’s cash bid; however, one director maintained arecommendation in favour of the Strike proposal citing theupside of the Strike proposal and the higher implied value.
STX Price at posting:
43.3¢ Sentiment: Buy Disclosure: Held
(20min delay)
