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APA trumps Caisse’s offer for Hastings fund

The Australian natural gas firm has reignited the bidding war for the Hastings Diversified Utilities Fund with a A$1.33bn offer, beating the A$1.25bn tabled by a consortium of Caisse de depot et placement du Quebec and the Utilities Trust of Australia fund.

APA, Australia’s largest natural gas infrastructure operator, has followed up its regulatory clearance to bid for the acquisition of Hastings Diversified Utilities Fund (HDF) with a higher offer for the vehicle, managed by Hastings Funds Management.

In a statement, APA said it would offer at least A$2.50 (€2.12; $2.57) per HDF security, valuing the fund at A$1.33 billion. APA’s revised offer includes a cash component of at least A$0.60, with the remainder to be comprised of a fixed amount of APA stock. Factoring in the A$0.025 distribution HDF plans to pay per security, APA’s bid will offer shareholders at least A$2.525 per HDF stock.

In nominal terms, APA’s offer is higher than the A$2.325 per share offered by Pipeline Partners Australia (PPA), a consortium of Canadian pension Caisse de depot et placement du Quebec and the Utilities Trust of Australia fund, which values HDF at A$1.25 billion.

“APA’s revised proposal is clearly superior to the PPA offer – our offer will be at least 7.5 percent higher, and following due diligence we anticipate a number of conditions so that our offer will be significantly less conditional than the PPA offer,” Mick McCormack, APA managing director, said in a statement.

But the PPA bid is all-cash, whereas APA is offering only circa A$0.60 in cash per HDF security. According to Moody’s, the ratings agency, APA doesn’t have much wiggle room to increase the cash component of its bid, if challenged by higher PPA 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/security,” noted Spencer Ng, a Moody's analyst. 

“APA has 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 increase, taking into account our financial tolerance for the Baa2 rating,” Ng adds.

The Australian natural gas operator came a long way to lodge its revised bid for HDF. APA had originally bid to take over HDF, but encountered opposition from both the fund’s board of directors – which rejected the offer – and the Australian regulator, which was concerned that the firm would end up owning all the major gas pipelines outside of Western Australia and that the competition would suffer.

APA, however, proposed to sell its Moomba-to-Adelaide pipeline and this was enough for the Australian regulator to give APA approval for the HDF takeover bid.

HDF’s board of directors said in a statement today that “it will meet to consider the terms of the [APA] announcement and will keep the market informed of any developments as appropriate”.