SANTOS has restructured and increased its offer for coal-seam methane producer Queensland Gas to $710 million in an attempt to fend off a rival proposal from AGL Energy.
Although a source close to Santos claimed the timing was a coincidence, its new offer was announced just hours after Queensland Gas released an independent valuation of its assets and one day before the competition regulator was set to rule on its original bid.
Under Santos's revised proposal, it would offer QGC shareholders $1.30 a share in cash for the acquisition of QGC's main coal-seam methane asset.
Santos would then issue each QGC shareholder shares in a "new QGC" on a 1-for-1 basis. Santos would invest $40 million in "new QGC", a company made up of the old QGC's exploration assets, for a 30 per cent stake in the new entity. "New QGC" would be run by the old QGC management team and shares would have an initial value of about 50c each.
The QGC board has already recommended that shareholders accept a rival proposal from AGL, which included a large gas supply agreement. Under that deal, which the Australian Competition and Consumer Commission approved last week, AGL would invest $292 million to take a 27.5 per cent stake in QGC at $1.44 a share. A vote on the deal is scheduled for March 2.
An independent expert's report prepared by Deloitte valued QGC shares at $1.35 to $1.80 each, topping Santos's initial $1.26-a-share offer.
But Shaw Stockbroking analyst John Colnan said it was difficult for the market to determine an appropriate price for QGC since AGL and Santos were looking to secure gas supplies in the next decade - far beyond most standard valuation models.
In a statement to the stock exchange yesterday, QGC said elements of the Santos proposal appeared attractive but was "conditional and incomplete".
QGC managing director Richard Cottee told the Herald Santos had approached his board with a similar proposal earlier this month.
"I said we've done the AGL deal and the board will always look at any superior offer," Mr Cottee said.
He said the deal was "conditional" primarily because it needed ACCC approval, which was not guaranteed. Mr Cottee also indicated he would be more comfortable with the Santos proposal if the larger company took less equity than the planned 30 per cent in a "new QGC". But he said he would be prepared to stay on and run the "new QGC" as Santos had suggested.
AGL declined to comment on the Santos proposal.
QGC shares closed 24.5c higher at $1.61.
QGC Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
