State-owned China Energy Reserve and Chemicals (CERCG) has withdrawn its A$430 million (US$325.4 million) takeover offer for Australia’s AWE.
AWE said last week that at first sight, the A$0.71 (US$0.537) per share offer – which represents a 30% premium on the closing price of its shares on November 29 – “is not sufficiently attractive to provide access to due diligence”. It did, however, appoint financial and legal advisers.
RBC Capital Markets analyst Ben Wilson told the Sydney Morning Herald this week that CERCG’s withdrawal was not wholly unexpected. “We are not overly surprised to see the indicative bid withdrawn, as M&A is difficult to pick how it plays out,” he said. “The manner in which the indicative bid was rebuffed, specifically making the bid letter public in the context of keeping possible SPP [share purchase plan] investors fully informed, possibly impacted the bidder’s appetite to push ahead.”
Analysts had mostly agreed that CERCG’s offer looked too low. RBC Capital for example values the company’s shares at A$0.91 (US$0.689).
A recent share offer in AWE was well taken up by existing long-term investors, suggesting that shareholders “may not be easily budged, particularly given the strong progress made on delineating a large Waitsia gas resource,” RBC’s Wilson said last week. “We think the bid pricing needs to be higher to engage the board and major shareholders.”
AWE’s appeal is easy to understand. It said last week that maximum gas flow rates at its latest well at its Waitsia-4 well had totalled 90 mmcf (2.55 mcm) per day and described this as “exceptional” and one of the best results recorded onshore Australia.
That statement lifted hopes that AWE would now push on into the second phase of the project. Indeed, the company said no further appraisal would now be needed before making an investment decision.
Beijing-based CERCG’s main shareholder is China National Petroleum Corp. (CNPC), whose state backing gives it deep pockets. Greater scrutiny in Beijing of state-back assets and a demand for value from investments may have stopped the state-backed energy company from raising its offer.