British gas producer BG Group has made a $12 billion (Dh44bn) bid approach to Origin Energy, seeking to bolster its position in the fast-growing Asia-Pacific gas market by securing the Australian utility's gas reserves.
The companies said BG, valued at around $85bn, had approached Origin with a proposal of A$14.70 ($13.7) per share in cash – a 40 per cent premium to Origin's close of A$10.47 on Tuesday.
Analysts said the purchase of Australia's second-largest power retailer would help fill a hole in BG's liquefied natural gas (LNG) business.
"Strategically such a purchase looks sound, based on BG's aspirations to have regional supply of LNG to Asia-Pacific markets," David Thomas, oil analyst, at Citigroup said.
BG reported a forecast-beating 78 per cent rise in first-quarter profits to £767 million ($1.52bn), yesterday, helped by a tripling in profits trading LNG in Asia. However, the company's shares traded down 3.75 percent at £12.59 at 1125GMT, on fears it was offering too much.
"Its a pretty high price and premium," said Sydney-based Jason Mabee, a utilities analyst at ABN AMRO.
But analysts at Merrill Lynch said in a research note that based on Origin's price earnings ratio, the proposed price would be cashflow neutral, while Citigroup estimated minimal earnings dilution in the near-term.
Colin Smith, analyst at Dresdner Kleinwort, said the market would also need to be convinced about the logic of BG, Europe's fourth-largest non-government controlled oil and gas company by market value, buying Origin's electricity assets. A spokeswoman said BG had experience in the power retail business, operating a profitable operation in India.
Shares in Origin traded 33 per cent higher at A$13.95, after earlier hitting an all-time high of A$14.60, indicating that investors were not expecting a better offer to emerge.
BG is one of the largest LNG shippers in the world and was the biggest importer of LNG into the United States last year, a spokeswoman said.
But Australia, a growing natural gas exporter, was seen as a weak spot.
In February, BG said it would pay A$664m for a 10 per cent stake in coal seam gas producer Queensland Gas Co (QGC) and direct interests in QGC's assets.
BG and QGC plan to build an A$8bn plant near the Queensland port of Gladstone that will freeze the coal bed methane, which is identical to traditional natural gas, to LNG for export.
Origin is the largest holder of coal seam gas resources in Queensland and analysts said these could feed a second plant.
Some analysts said Origin may use its proximity to other proposed LNG projects in Gladstone to fight for a higher price.
Local rival Santos Ltd, which also plans an LNG plant at Gladstone, could be interested in bidding, but with a market capitalisation of just $9bn, analysts said it was unlikely to try and battle BG. "I would have thought it'd be hard to get competing interest. It's not as if it's a low offer putting it in play. This seems like a fairly full offer on face value," said Rohan Walsh, an investment manager at Karara Capital.
Last February, Origin rejected a merger proposal from rival AGL Energy Ltd. Origin has a 23 per cent market share in the gas and electricity business in eastern Australia, closely trailing AGL's 26 per cent.
Peter Chilton, an analyst with Constellation Capital Management, said BG could sell off Origin's power and retail business to help fund the deal. Origin also owns 51 per cent of Contact Energy Ltd, New Zealand's largest energy company. (Reuters)