Santos revises offer for QGC Tony Grant-Taylor
January 30, 2007 11:00pm
SANTOS has upped the stakes in the battle for Queensland Gas Co increasing its cash bid for control of the group's assets to $710 million while offering QGC shareholders, management and directors the chance to maintain a stake in the company's "blue sky".
As QGC yesterday released the explanatory memorandum on its previously announced deal with AGL Energy, which included an expert's valuation of QGC shares at between $1.49 and $2 each, Santos said it was proposing a new offer it valued at $1.80 in cash and kind.
The cash offer for QGC shares is up to $1.30 from its current bid of $1.26 a share which it will allow to lapse next week.
But the sweetener – which might in the end prove enough, with or without a little more cash, to sink AGL's alternative proposal – is Santos's promise to establish a "new QGC".
This vehicle, in which QGC shareholders would be offered shares on a 1-for-1 basis, would hold a large swag of QGC's current untapped exploration acreage, with Santos taking title to the group's current producing and highly prospective ground in the so-called Undulla Nose.
Santos said it believed the shares in New QGC would be worth in the order of 50¢ each, taking its offer price to $1.80, at the higher end of the AGL deal's independent valuation.
QGC yesterday said the new Santos offer was unsolicited, though it and Santos had held some discussions in the lead-up to its release.
QGC said "there were a number of conditions and the proposal's terms would need to be in a form acceptable to QGC and fully documented before (it would be) capable of being compared with the (proposed) AGL transaction".
AGL has proposed taking 27.5 per cent of QGC for $292 million, valuing its shares at $1.44 each with QGC using some of that cash for a limited share buyback at the same price and AGL signing a number of agreements to take QGC gas.
QGC managing director Richard Cottee said yesterday the AGL deal "is certain" and at present had his board's recommendation.
But he also said "elements of the Santos proposal appear attractive to QGC and its advisers are currently considering (it)".
Mr Cottee has been adamant since Santos first launched its $1.26-a-share offer last year that its offer did not account for QGC's potential, the "blue sky" promised by the group's so far hugely successful exploration program.
He said at least some of "what I said could make a Santos offer attractive had now been given. Santos has obviously been listening to us."
Santos's proposal would see it take 30 per cent of New QGC at 20¢ a share, pumping $40 million into the new company.
Santos managing director John Ellice-Flint said the discount to the 50¢ value it had placed on New QGC shares was to allow for Santos's further proposal that New QGC have a right to sell Santos 60 petajoules of gas and a series of additional assistance and service agreements.
QGC shares rocketed 18 per cent, or 24.5¢, to $1.61 yesterday. They were selling at the equivalent of about 6¢ at this time last year.
Deloitte Corporate Finance's independent expert's report released with yesterday memorandum on the AGL proposal, valued QGC shares "at between $1.49 and $2 on a control basis".
Santos said it believed its new offer was superior to the AGL proposal and was at the midpoint of independent expert's valuation.
New QGC would contain QGC's assets except the flagship Undulla Nose project, which includes its prolific producing Berwyndale South field, and Santos has proposed it be run by the present QGC management including Mr Cottee.
"Santos' proposal draws on the skills, drive and experience of Richard Cottee and his team at QGC which has a proven track record in developing Queensland's coal seam gas industry," Mr Ellice-Flint said.
"It would also benefit from unique commercial agreements with Santos, which would be designed to maximise New QGC's prospects of success."
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