China focused Sino Gas & Energy Holdings’ board last week backed a A$530 million (US$401 million) takeover from US private equity firm Lone Star Funds. The Australian independent’s shareholders will vote on the offer in late August or September, with the offer needing to secure at least 75% of the votes cast to be approved.
Under the proposed terms of the agreement, Sino Gas shareholders will receive A$0.25 (US$0.19) per share, which is a 19% premium to its close on May 29 on the Australian Stock Exchange. The cash offer provides shareholders with “cash certain value now versus the future risks and uncertainties associated with the business,” Sino Gas’ managing director, Glenn Corrie, told analysts and investors on a teleconference.
The move comes as a surprise to shareholders, who were unimpressed with the offer, citing a lack of premium. Feeling blindsided, many have speculated that the board must be aware of greater risks than they and the market have modelled. One shareholder told the Sydney Morning Herald last week that “things have gotten difficult in China at the 11th hour and management have rolled in rather than dig in for a fight; they could have held out for a little longer.”
Analysts at Macquarie Wealth Management also expressed their surprise at the board’s support for the offer. “Unanimous board approval at 25 cents a share is surprising, given that Sino traded at 23.5 cents [US$0.18] a share only 10 days ago,” Macquarie analysts said, while also acknowledging that as Sino Gas de-risks and moves to being cash flow positive by 2020 the board must be aware of greater risks.
Sino Gas has three major projects in China, the Linxing East and West gas plays and the Sanjiaobei gas project in Shanxi Province. In May, it won the first of several approvals needed to develop these projects. Sino Gas is targeting a production rate of between 350-550 mmcf (9.91-15.58 mcm) per day by 2022, supplying the Chinese domestic market, where gas demand is soaring.
It is not the first time Lone Star has attempted to acquire an Australian oil and gas company, after making an unsuccessful A$421 million (US$311 million) unsolicited, fully cash takeover proposal for AWE in 2016.