Australian gas producer AWE Ltd. on Dec. 21 accepted a sweetened takeover offer from Mineral Resources Ltd. worth about A$526 million (US$403 million) and that trumped an all-cash bid from a Chinese state-owned firm.
Mineral Resources improved its all-shares offer with a cash component, promising to pay the equivalent of A$0.83 a share, as long as Mineral Resources shares average between A$15 and A$21 a share ahead of a vote on the bid, expected in April.
AWE's board unanimously recommended the offer, which topped a A$442 million, A$0.73 a share, bid from China Energy Reserve and Chemicals Group (CERCG), and was 52% above AWE's share price before the first bid was disclosed in November.
"We think it's a pretty compelling offer. It's good value to AWE shareholders, principally driven by Waitsia and other undeveloped assets," AWE CEO David Biggs said.
Waitsia, 50% owned by AWE, is considered the best onshore conventional gas find in Australia in four decades.
AWE's shares fell 3% to A$0.85 after the deal was announced, as the offer was lower than the value of Mineral Resources' original all-share offer as of close on Dec. 20.
The way the revised offer is structured, however, it is expected to be more palatable to AWE investors.
"We believe the form of the revised bid somewhat mitigates many of the uncertainties attached to the initial scrip bid," Royal Bank of Canada analyst Ben Wilson said in a note.
He expected shareholders to accept it, Wilson said.
Key to the deal will be the approval of AWE's biggest investor, Ellerston Capital, which is backed by billionaire James Packer and holds a 13% stake in the gas producer.
"It's fair to say that we've spoken to our single largest shareholder, and he's very happy with the deal as it stands and very happy to take MinRes shares," Biggs told Reuters, referring to Ellerston portfolio manager Chris Kourtis.
Kourtis was not immediately available for comment.
Mineral Resources Managing Director Chris Ellison said his company is eager to develop Waitsia as a "key pillar" of the company's business over the next 20 to 30 years.
CERCG, which has been pressing AWE for access to its books before considering raising its offer, had no immediate comment on AWE's decision to back the Mineral Resources bid.
(US$1 = 1.3046 Australian dollars)