Forum Topics GNX GNX Takeover Offer from J-POWER

Pinned straw:

Last edited 9 months ago

04-March-2024: Genex-receives-NBIO-from-J-POWER.PDF

GNX is up +32.4% (to 24.5 cps) at this point today, however they've been as high as 25.5 cps this morning, which was +37.8% above their 18.5 cps close yesterday. This non-binding, indicative and conditional proposal from Electric Power Development Co., Ltd. of Japan (J-POWER) to acquire all of the ordinary shares on issue in Genex that J-POWER and its associates do not already own (by way of a members’ scheme of arrangement) is priced at A$0.275 in cash per Genex Share, and also contains an alternative structure, under which J-POWER will potentially also, concurrently with the Potential Scheme, make an off-market takeover bid for all of the Genex Shares for A$0.270 in cash per Genex Share.

The Scheme Consideration of 27.5 cps cash per Genex Share represents a:

  • 49% premium to the last closing price of Genex Shares on the ASX of $0.185 (as at 1 March 2024, being the last trading day on the ASX before the date of this announcement);
  • 56% premium to the 1-month (to and including) 1 March 2024 volume weighted average price (VWAP) of Genex Shares of $0.176;
  • 58% premium to the 3-month VWAP of Genex Shares of $0.174; and
  • 65% premium to the 6-month VWAP of Genex Shares of $0.166. 

The first 4 pages of today's announcement are reproduced below. For the full announcement, click on the link at the top of this straw.

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The remainder of the announcement can be viewed here: Genex-receives-NBIO-from-J-POWER.PDF

Genex has rejected takeover proposals in prior years, from Skip Capital and also from a consortium that included Skip Capital and others, and Skip Capital still owns 19.99% of Genex today. Japanese company J-Power has plans to get around that supposed blocking stake by Skip (explained below).

Skip Capital was founded by and is run by Atlassian co-founder Scott Farquhar and his wife Kim Jackson (pictured below), and they recently teamed up with private equity giant KKR to acquire Queensland Airports - see here: KKR teams up with Skip Capital for Queensland Airports; vets EastLink (afr.com)

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The IBC (independent Board committee, so the Genex Board minus J-POWER’s representative and nominee to the Genex Board, Kenichi Seshimo) intends to recommend the transaction to Genex Power (GNX) shareholders - see pages 3 and 4 of today's announcement - reproduced above.

In this AFR article published today: J-Power taps MacCap, Minters to Skip-proof Genex Power bid (afr.com), they say this:

Genex Power’s 7.72% shareholder J-Power and its bankers at Macquarie Capital have baked in two safeguards in their Monday morning bid to combat Skip Capital’s 19.99% stake.

While J-Power stopped short of naming Scott Farquhar’s Skip Capital as the reason, it’s clear that’s what its advisers were thinking of when they rebooted the dual-track bid structure seen at Azure Minerals late last year.

Skip EIF Enterprises Pty Ltd owns 19.99% of Genex and in 2022, lobbed a bid to buy it for 25¢ a share with Stonepeak Partners before walking away. Of note, it hasn’t yet committed its stake to supporting J-Power’s bid.

The second set of safeguards – no talk, no shop, no DD – is much more customary. But Genex’s ASX announcement called out Skip and related entities as parties with whom interaction is prohibited during the four-week exclusive due diligence.

To be clear, there’s no suggestion Skip or another interloper is about to hit back with a competing proposal, but J-Power is watching its back. It’s already a 50% partner in Genex’s Kidston Stage 3 Wind and Bulli Creek projects and provided it with a $35 million loan facility last year.

As for Skip, it would be interesting to see what it does with its 19.99% stake. Selling into J-Power’s bid should get some tongues wagging on the Atlassian co-founder’s ambitions to support energy transition.

“We have been a supportive shareholder of Genex, and we believe that long-term, private capital can help the company reach its full potential,” Kim Jackson said at the time.

Goldman Sachs is advising Genex.

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Source: https://www.afr.com/street-talk/j-power-taps-maccap-minters-to-skip-proof-genex-power-bid-20240304-p5f9jg

[by Sarah Thompson, Kanika Sood and Emma Rapaport, Mar 4, 2024 – 12.12pm]

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Genex is building the Kidston Clean Energy Hub on the site of the old Kidston gold mine. 

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Further Reading: Why Scott Farquhar, Kim Jackson want to take Genex Power private (afr.com) [25-July-2022]

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This is an interesting development today, and it's looking like a change of control transaction IS going to occur this time. I had expected Genex to get taken out at some point by a larger player, so this does not come as a surprise to me. I would have liked a higher price however, but a profit is still a profit.

PeregrineCapital
Added 9 months ago

Hi Bear,

Do you know much about the structure of the takeover?

Is my understanding that the scheme requires 75% of votes cast in favour, meaning it could get up even without skips (19.99%) support? On the other hand, the off market takeover would mean that J Power need to get at least 75% of the targeted shares for it to go ahead?


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Bear77
Added 9 months ago

I only know what's in Appendix A of the announcement @PeregrineCapital , which has the following conditions:

The Indicative Proposal states that the provision of a binding proposal in respect of the Potential Transaction by J-POWER is subject to (i.e. J-POWER will deliver to Genex a Binding Proposal as long as the following conditions are met):

  • the completion of due diligence to J-POWER's satisfaction on an exclusive basis;
  • the Genex IBC unanimously recommending that Genex Shareholders vote in favour of the Potential Scheme and, if the Potential Takeover Offer is made by J-Power, accept the Potential Takeover Offer [already achieved]; and
  • the negotiation and execution of an Implementation Agreement in respect of the Potential Transaction on customary terms and conditions (including in respect of exclusivity and deal protection).

The Indicative Proposal also states that:

• it is based, and conditional, on the following key assumptions and matters:

  • Genex has a fully diluted share capital of 1,385,177,140 Genex Shares;
  • Genex continues to be run in the ordinary course with no material changes to its business operations (including material divestitures or sale of equity interests at key development projects) after the date of the Initial Indicative Proposal;
  • Genex remains in compliance with its banking covenants (unless and except as otherwise notified and consented to by J-POWER);
  • Genex's net debt does not exceed A$693.4 million, subject to agreed exceptions; and
  • that no dividends, distributions or capital reductions are paid by Genex after the date of the Indicative Proposal;

• implementation of the Potential Transaction will be conditional on:

  • the receipt of all necessary regulatory approvals, including approval from the Foreign Investment Review Board (FIRB);
  • in respect of the Potential Scheme, all customary scheme related conditions (such as shareholder and Court approval), and conditions that no prescribed occurrences or material adverse events occur in relation to Genex) having been satisfied; and
  • in respect of the Potential Takeover Offer, if made by J-POWER, the Potential Scheme having not been approved by Genex Shareholders at the Scheme Meeting, or by the court, and J-POWER having a relevant interest in at least 50.1% of the Genex Shares (50.1% Minimum Acceptance Condition), “among other customary conditions for a takeover offer” (including conditions that no prescribed occurrences or material adverse events occur in relation to Genex); and

• J-POWER reserves the right to include additional conditions it considers necessary or desirable to implement the Potential Transaction.

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There is a 50.1% minimum acceptance condition in there @PeregrineCapital - but nothing higher than that.

Appendix B is all about the "No Shop, No Talk, No DD" restrictions, but Genex has a "Fudiciary Out" in relation to potential "Superior Proposals", although J-POWER can withdraw their offer in that circumstance, so that's the risk.

The 50.1% minimum is also mentioned on page 1 of the announcement, so it would appear that J-Power is happy with majority control rather than 100% control, so they're willing to work with Skip Capital as minority shareholders if Skip refuse to sell into the bid.

The dual deal structure means that even if the scheme is voted down by Genex shareholders, Genex shareholders are still able to sell through the proposed concurrent off-market 27 cps bid, so the advantage in voting for the scheme is that shareholders will get the higher 27.5 cps, but if that falls over, there's still potentially an open off-market 27 cps offer that Genex shareholders would be able to sell into at any time.

The main risks to this are clearly the conditions I've outlined above (from Appendix A) including FIRB approval and Genex's debt not increasing or banking covenants being broken, and the DD (due dilligence) being completed to J-Power's satisfaction.

J-Power have a very good idea of what is going on within Genex as they already own 7.7% of Genex (prior to this bid), are lenders to Genex, and are 50/50 JV partners with Genex in the multi-staged solar power generation and battery project at Bulli Creek, Queensland (the “Bulli Creek Project”). Alongside the joint development agreement, J-POWER signed an agreement to provide Genex with a corporate loan facility of A$35m - see here: JPower-Genex-Bulli-Creek-JV-30-June-2023.pdf.

J-Power are also a 50/50 joint development partner of Genex for its Kidston Stage 3 Wind Project, so they are all over Genex. I doubt there will be any surprises in the DD for J-Power. They know Genex very well.

Further Reading: J-Power bids $249bn for Australian renewables developer Genex (power-technology.com) [04-March-2024]

So, the short answer is that rules around scheme meetings mean that they need 75% for the scheme to be approved - see here: How a Scheme of Arrangement Works - Guide - MinterEllison - for the scheme to be put to the court and become effective - however, the back-up plan, meaning the off-market takeover at 27 cps only requires 50.1% in J-Power's view. It would therefore be in Genex shareholders' interests to vote the scheme up at the meeting to get the extra half cent per share, because J-Power are almost certain to get their 50.1% using the alternative method if the scheme is voted down, in the absence of a superior offer.

One more point - I'm thinking that the chance of a superior offer emerging from a third party - or from Skip Capital, is not very likely, in a similar way to the prevailing view that the Renesas offer for Altium is unlikely to be trumped by a higher offer. This is just because the Japanese tend to have a longer-term focus and are therefore willing to pay higher prices for future earnings with companies that will provide decades of income for them into the future. They also dislike bidding wars, so they will generally make an offer that is sufficiently high that rival companies just let them have it because rival companies aren't prepared to stump up that amount of cash. Just my view, FWIW.

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