qgc sto the australian today

Santos keen to stitch up coal seam deal
Nigel Wilson, Energy writer
January 31, 2007

SANTOS has signalled its intense determination to secure more coal-seam methane reserves by lifting its bid for Queensland Gas Company to an effective $1.80 a share, or $710 million.
The complicated deal, issued to the market after QGC's board released an information memorandum supporting an arrangement with Santos's rival AGL Energy, is also designed to counter possible ACCC criticism concerning competition levels in the CSM industry.
QGC's managing director Richard Cottee said last night that while he supported the AGL arrangement and thought highly of AGL Energy's CEO Paul Anthony, "the board has a fiduciary duty to consider Santos's incomplete and conditional offer" before advising shareholders.

Mr Cottee said he had been in confidential talks with Santos executives since the second week of January. It is understood that the executives included managing director John Ellice-Flint.

Under the improved Santos offer, flagged by The Australian earlier this month, QGC shareholders would receive $1.30 a share in cash, up from $1.26 previously, which valued the company at $606 million.

They would also receive, on a one-for-one basis, shares in "New QGC", which would own a number of QGC's existing tenements with a long-term offtake agreement with Santos.

The Adelaide-based company said the indicative value of New QGC would be around 50c a share, which implied a total consideration of $1.80 for each existing QGC share.

In return, Santos would acquire QGC's Undulla Nose CSM asset in southeast Queensland. "The New QGC, led by the current QGC board and management team, would focus on immediately commercialising these coal-seam assets," Santos told the stock exchange, indicating it would initially take up 30 per cent of New QGC but no seats on the board.

The indicative $1.80 price was above the mid-point of the "per share" control valuation determined by QGC's independent expert, Deloitte Corporate Finance, in the AGL explanatory memorandum, Santos said.

The ACCC had nominated today as its deadline for releasing its findings on the potential competition issues of Santos's $1.26 proposed takeover after seeking market advice on competition issues, particularly relating to whether the CSM market was a national market or one set by Queensland's state boundaries.

Earlier, QGC's board told shareholders the expert report compiled by Deloittes had estimated a fair market value for a QGC share, on a significant interest basis, in a range of $1.35 to $1.80, representing a value range of $1.49 to $2 for a QGC share on a majority basis.

Deloittes said the $292 million AGL Energy proposition, to acquire 27.2 per cent of QGC through a placement at $1.44 a share along with a 20-year gas supply agreement, was fair and reasonable.

Presciently, the expert's report said: "The bid by Santos is still current, subject to ACCC approval, and may be improved."

Last week the ACCC ruled there were no competition concerns with the proposed partnership between QGC and AGL.

On the stock exchange, QGC shares raced ahead by 24.5c to $1.61 while Santos shares dropped 11c to $9.25.