APA Approaches Envestra with Merger Offer (Australia)

APA Group, Australia’s largest natural gas infrastructure business, announced it has approached the board of Envestra Limited with a proposal under which the two businesses would be combined through an all-share merger.

The proposal remains indicative and non-binding.

APA acquired a 17.2 per cent interest in Envestra in July 2007, and has supported Envestra with further equity investments over the last six years. APA currently owns 33.0 per cent of Envestra shares and is its largest shareholder.

Envestra is one of Australia’s largest natural gas distribution companies, owning regulated natural gas distribution networks in South Australia, Victoria, Queensland and New South Wales, serving approximately 1.2 million gas consumers.

APA already manages and operates Envestra’s gas distribution networks and pipelines under a long term operating and management agreement. Under the agreement, APA also has responsibility for planning, designing and constructing network extensions, and promoting the use of gas within the networks.

The merger proposal

Under the proposal, Envestra shareholders would receive 0.1678 new APA stapled securities for each Envestra share they own, and would be entitled to any final Envestra dividend for the 2013 financial year of up to 3.0 cents per share.

This implies a value of $1.10 for each Envestra share, and represents a premium of 10.6 per cent to the one month Volume Weighted Average Price (VWAP) of $0.995 for Envestra shares. The proposal values the equity of Envestra at $1.98 billion.

Eligible Envestra shareholders will also benefit from a significant proportion of capital gains tax rollover relief.

Benefits of the proposal

APA Group Chairman Mr Len Bleasel AM said that APA is uniquely positioned to offer full value for Envestra shareholders and, importantly, the benefits of continued exposure to Envestra’s assets as part of an enlarged APA Group.

“The combination of Envestra and APA is a logical next step in creating Australia’s pre-eminent energy infrastructure group with a diversified and integrated suite of assets. Envestra’s 22,500 km of natural gas distribution network, together with APA’s extensive pipeline infrastructure, will form a unique footprint of natural gas infrastructure assets.

“If the proposal is implemented, both Envestra shareholders and APA security holders alike will enjoy the benefits of scale, integration and diversification of the combined group”, Mr Bleasel said.

The combined group is expected to have a market capitalisation of approximately $6.6 billion which will place it within the 40 largest entities in the ASX All Ordinaries Index. Furthermore, the combined group is expected to have a stronger balance sheet and improved access to a broader range of more liquid capital markets and more competitive sources of funding.

Mr Bleasel said APA will continue to operate the combined APA and Envestra assets with minimal integration risk due to the existing asset management agreement in place.

“Furthermore, APA’s involvement with Envestra’s business and assets puts it in the best position to efficiently operate and sustainably grow the business, creating further value for all security holders of the combined group.

“The benefits of growth, security and value experienced by APA security holders will continue with the addition of the Envestra assets – the combined group will be well placed to deliver long term, sustainable growth across all asset classes, provide security from a more balanced mix of regulated and unregulated revenue, and generate value with its highly skilled workforce operating APA’s integrated asset portfolio,” Mr Bleasel said.

APA has a proven track record of delivering sustainable and growing distributions and increasing security holder value. On a total securityholder return basis, APA has outperformed the market since listing in June 2000, with a total securityholder return of 845 per cent compared with 173 per cent for the S&P/ASX 200 Accumulation Index.

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