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http://www.businessspectator.com.au/bs.nsf/Article/Santos-Eastern-Star-Gas-Sundance-Hanlong-News-Corp-pd20110719-JVSG8?OpenDocument&src=eaih&ir=3

BREAKFAST DEALS: Santos swoops

Supratim Adhikari

Published 7:33 AM, 19 Jul 2011 Last update 7:33 AM, 19 Jul 2011



The big, bad carbon tax seems to have opened the gates for more M&A action, with deals in the energy and iron ore sectors. Santos has finally moved on Eastern Star Gas in a bid to rule the gasfields of New South Wales and the good news for the company's shareholders is that it?s going to pick them up on the cheap. Meanwhile, Sundance Resources gets a conditional $1.4 billion bid from Hanlong Mining and can probably squeeze a sweetener out of the Chinese suitor. Moving to News Corp, there are signs of discontent among the media giant?s independent directors and Elisabeth Murdoch may be the best bet to fill Rupert?s shoes. Elsewhere, Macquarie?s share slip fuels takeover speculations and CVC looks to refinance Nine Entertainment?s $3.6 billion debt.

Santos, Eastern Star Gas, TRUenergy

Details of the carbon tax have been out for just a little over a week and those warning that the tax would irreversibly damage the Australian resources sector may need to rethink their position given the flurry of M&A action seen in the market. The latest action is focused on the mid-tier section of the energy and mining sectors, with Santos finally making its move on Eastern Star Gas and iron ore explorer Sundance Resources the target of a Chinese suitor. We start with Santos, which looks set to lord over the gasfields of New South Wales with its bid for ESG. The friendly scrip deal values ESG stock at 90 cents a share, so technically the target is valued at $924 million, but Santos subsequently plans to sell 20 per cent of ESG?s assets to Hong Kong-owned electricity generator and energy retailer TRUenergy for $284 million. The move by Santos was only a matter of time, especially after the company increased its stake in ESG to more than 20 per cent in April. TRUenergy has a three per cent stake in ESG, so it?s unlikely that this deal is in any threat of keeling over any time soon. The good news for Santos is that the deal will help it beef up the coal seam gas supply to feed its $16 billion Gladstone LNG plant on the cheap. ESG may have been trading at 59.5 cents before the bid but it wasn?t that long ago that the stock hit a high of 93.5 cents. That high was in September last year but since then weaker market conditions and the growing clamour over environmental concerns has weighed on the stock. So the 90 cents a share may not be a showstopper, but it?s the only one ESG is likely to get and Santos has timed its move well. The other winner here is TRUenergy, because the deal certainly bolsters its credentials ahead of a mooted IPO. Buying the ESG stake from Santos is money well spent for TRUenergy, because it gives it security of supply for its generators. TRUenergy is paying an equivalent of 50 cents a gigajoule for the gas, which is also cheaper than the recent average of 75 cents. According to The Australian Financial Review, all of that adds up to a valuable selling point to investors if and when the IPO bandwagon rolls into town. With ESG out of the picture, the attention could turn to the likes of Bow Energy and Metgasco and the AFR reports that Arrow Energy?s spin-off Dart Energy may also be a target. Deutsche Bank is acting as Santos' financial advisor, with Freehills providing the legal services. Flagstaff Partners and JP Morgan are advising ESG, with Piper Elderman acting as legal adviser. TRUenergy is being advised by Morgan Stanley and Blake Dawson.