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Last edited 6 years ago
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#Takeover
stale
Added 6 years ago

If you are an existing shareholder -- take the money and run!

With the market now valuing shares at around $10, this is a very asymmetric bet.

If the takeover goes through, you get a 10% upside. (And, with FIRB and ACCC approval necessary, that's far from certain).

If it doesnt go through, shares will likely drop back to where they wer prior to the takeover announcement. That's a ~18% odd drop.

A bird in the hand is worth two in the bush

#Risks
stale
Last edited 6 years ago

Regulation risk

The Australian Energy Market Commission is looking to address the unaffordability for gas for some east coast manufacturers and other industrial energy users, and is hoping to see rules for tariff negotiations tightend up.

Of the 30 major gas pipelines in Oz, APA owns 13. Three are regulated pipelines, two are deemed to be "lightly" regulated, while the rest operate without regulated access or pricing. 

AFR article here, and here

#Takeover
stale
Last edited 6 years ago

The unsolicited offer from Hong Kong CKI group is at $11-a-share is a 33 per cent premium to APA's close on Tuesday, and more than $1 above the company's record high hit in mid-2017.

Represents an EV/EBITDA ration of about 15 (seems generous for a low growth operation)

It may not get approval from the Foreign Investment Review board., given APA's dominant east coast position.  Either way, this is likely to be a drawn out process (the Duet deal took 5 months to get approval)

2 years ago, CKI was vetoed from a $11 billion-plus takeover of Ausgrid.

In winning over the FIRB and the ACCC, CKI's strategy appears to be (according to AFR) to:

  1. Show it is committed to further infrastructure projects. That is, "to keep the gas flowing" and create jobs.
  2. Divest some WA assets to limit competition concerns 
  3. Would acrt to improve regulatory oversight and transparency -- something the ACCC has been gunning for

CKI owns a bunch of Aussie assets already: including the $7.4b buyout of DUET Group last year and the 2014 acquisition of Envestra (now called Australian Gas Networks). The  group also owns 51 per cent of Victorian power distributors CitiPower and Powercor, and of South Australian distributor ETSA Utilities.

#Overview
stale
Last edited 6 years ago

APA Group (APA) operates natural gas transportation business with interests in energy infrastructure across mainland Australia, including natural gas pipelines, gas storage facilities and a wind farm. 

Has a long history of steady dividend increased -- has risen every single year since 2008, at an average pace of 4.8% per year.

A reliable earner, but highly leveraged (and, as such, sensitive to interest rates).

On 13th June 2018, they recieved a takeover offer from Hong Kong's CKI Group at $11/share, cash. (AFR article here, ASX announcement here) a 33% premium to last traded price.

Prior to the offer, shares were offering a 5.3% yield, only partly franked (~14%)

#Risks
stale
Added 6 years ago

APA is an asset heavy operation with a high degree of debt.

That's not a big problem; it has very reliable cash flows and can reliably service its debt. Indeed, it's leveraged structure helps achieve a superior Return on Equity (ROE).

But it is sensitive to interest rates. 

It has around $9.7 billion in debt, at an average interest rate of 5.6%. 

A 1% rise in interest ratesadds almost another $100m in interest expenses -- it had $919 in normalised operating cash flow on a trailing 12-month basis.

HOWEVER, it could still refinance at lower rates -- see preso here.