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BG Makes Hostile Bid for Origin After Friendly Overtures Declined24 Jun 08BG has renewed its offer for Origin Energy, this time with a direct appeal to shareholders in the hope that they will have a greater appreciation of the risks involved in developing the company's coalbed methane reserves than its directors did last month.
Determined Suitor BG Group has come back to the table this week with an appeal to Origin Energy shareholders over the heads of directors, after the latter courted, and then rejected, its A$13.8-billion (US$13.2-billion) takeover bid in May. BG has repeated its final offer to the board of A$15.50 per share—representing a 48% premium to Origin's share price on 28 April of A$10.76 before BG's interest was announced. However, the flurry of speculative buying in the last month and a half has already taken the share prices to A$16.42 this morning (a 6% premium), making the British firm's case a little harder to make. BG's initial understanding with the Origin board was scuppered after Malaysia's Petronas put in a US$2.5-billion bid for Santos's coalbed methane (CBM, also known as coal seam gas) reserves and a Queensland liquefaction facility, persuading Origin directors that their assets were worth much more. They also cited a report stating that the company's CBM reserves were 121% higher than previously estimated at 10,122 petajoules, giving Origin a value in their eyes of some A$16 billion—or A$2.2 billion above the BG price (see Australia: 30 May 2008: Origin Energy Rejects BG Takeover Bid). Take a Good Look in the Mirror BG's appeal included a statement from chief executive Frank Chapman, who said that "BG is not here to steal something, we think the bid is very credible and we're not ashamed of it. It's not our intention to raise our price, but we reserve the right to do so.'' He explained that "Origin does not have sufficient coal seam gas reserves for a Liquefied Natural Gas joint venture: there are third-party contractual rights over a large number of Origin's tenements that have not been adequately explained; and Origin's domestic market requirements from coal seam gas exceed the company's currently available proven reserves." The development of LNG alone would also hold substantial risks, in BG's assessment—and defer any monetisation from that source until 2015-16 "at the earliest". Outlook and Implications A war of words is already in progress, with BG portraying its position as the informed outsider with a wider view on the market and Origin, the naïve ingénue who was nearly persuaded into giving away its charms lightly. BG needs to win acceptance of 50.1% of voting shares to carry the day. However, the relatively complex argument necessitated by the British bidder—in combination with resonant appeal from the rising share price—means that this will be no easy task. This is exacerbated by the fact that, given that current interest in Australian CBM is such—after Petronas's and Shell's deals in recent weeks—the entrance of a third party cannot be ruled out (see Australia: 2 June 2008: Shell Targets Arrow Energy's CBM Resources in Australia and Australia: 29 May 2008: Petronas Pays US$2.51 bil. to Take 40% Stake in Santos's Gladstone LNG Project). |
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