APA gets Hastings backing for fund takeover

Hastings’ directors have told shareholders to accept APA’s takeover offer for the Hastings Diversified Utilities Fund, after a consortium of Canada’s Caisse de depot et placement du Quebec and Utilities Trust of Australia declined to match APA’s A$.135bn to A$1.39bn bid.

APA, Australia’s largest natural gas operator, has won the backing of Hastings Funds Management in its takeover battle for the Hastings Diversified Utilities Funds (HDF), Hastings’ directors announced in a statement today.

The move was expected after rival bidder Pipeline Partners Australia (PPA) – a consortium of Canada’s Caisse de depot et placement du Quebec and Hastings-managed Utilities Trust of Australia – declined yesterday to match APA’s latest offer for Hastings-managed HDF, bowing out of the takeover race.

A subcommittee of Hastings’ directors said it “unanimously recommend that HDF securityholders accept APA’s offer in the absence of a superior proposal. The independent directors have therefore withdrawn their recommendation that HDF securityholders accept PPA’s takeover offer,” the directors added.

APA upped the ante for HDF with last week’s offer of A$0.72 (€0.61; $0.75) in cash and 0.39 APA securities per HDF share, valuing HDF at A$2.53 per share, or A$1.35 billion. The revised offer beat PPA’s A$2.43 per share bid, which values HDF at A$1.29 billion. PPA had until yesterday to match APA’s bid, which it declined to do.

APA’s new offer is contingent on 70 percent of HDF’s shareholders accepting it, but gets even sweeter if 90 percent of shareholders go for it. In that case, APA is prepared to increase the cash component of its bid to A$0.80, raising its offer for HDF to A$2.61 per share, or A$1.39 billion. APA already owns 21 percent of HDF.

It will be interesting to see how the ratings agencies react to APA’s increased bid for HDF. In a previous note, Spence Ng, a Moody’s analyst, had suggested APA didn’t have much wiggle room to increase the cash component of its bid:

“APA’s ratings are not immediately affected by today’s announcement, provided the cash component is kept at the minimum of A$0.60 per security,” Ng pointed out in relation to an earlier APA bid. “APA has a solid financial profile at its Baa2 rating. If the final cash consideration, however, is increased beyond the minimum guidance provided today, then we will consider the impact of such an increase, taking into account our financial tolerance for the Baa2 rating,” the analyst added. 

Bidding for HDF – which manages two gas pipelines that serve Moomba, Australia’s principal onshore gas hub – has been fierce. And up until now, APA had been mainly fighting a losing battle, with PPA bettering its bids and Hastings’ directors successively refusing to recommend its takeover proposals.

To be able to take over HDF, APA had to pledge to the Australian regulator that it would sell one of its pipeline assets, allaying concerns that it could end up owning all the major gas pipelines outside of Western Australia and that competition would suffer.