Duet: Cheung Kong deal to test Australia's foreign investment regime (updated)
16/01/2017 02:22
* DUET recommends raised offer from Hong Kong's Cheung Kong
* Consortium led by Cheung Kong offers A$7.37 billion for
DUET
* Parties seem confident of FIRB approval -DUET shareholder
(Recasts, adds investor and analyst comment, share price
reaction)
By Jamie Freed
SYDNEY, Jan 16 (Reuters) - DUET Group DUE.AX has agreed to
recommend an increased $5.51 billion bid from a consortium led
by Cheung Kong Infrastructure Holdings 1038.HK , in a deal that
is likely to test Australia's appetite for foreign investment in
its key energy assets.
In what is seen as an increasingly protectionist stance,
Australia has been thwarting attempts by foreign investors to
buy strategic assets in the country. Recently, it blocked a bid
by Hong Kong's Cheung Kong Infrastructure (CKI) to buy
state-owned firm Ausgrid on national interest grounds.
urn:newsml:reuters.com:*:nL4N1CU035
Australia has since imposed limits on foreign ownership in
the sales process for a smaller power grid, Endeavour Energy, as
sensitive assets such as ports and energy grids come under
increased scrutiny. urn:newsml:reuters.com:*:nL4N1EA096
While CKI's latest bid to buy DUET for A$3.03 a share - up
A$0.03 from an earlier offer - remains subject to approval from
the Foreign Investment Review Board (FIRB), a shareholder in the
Australian firm said the deal was proceeding as if the parties
"are confident they will get it".
"The fact (CKI) are proceeding in a fairly timely manner
having learnt from previous things, they'll be addressing
(foreign investment concerns) the best they can," said Jason
Beddow, the chief executive of Argo Investments, eleventh
largest shareholder in DUET.
DUET's board has decided to recommend CKI's A$7.37 billion
offer in the absence of a higher bid. urn:newsml:reuters.com:*:nL4N1DZ0GD
Shares in the Australian energy firm rose more than 5
percent to just below CKI's per-share offer price on Monday.
"It is a very high valuation for DUET," RBC Capital Markets
analyst Paul Johnston said, adding it equated to 1.6 times
DUET's regulated asset base. "The market is now focused on FIRB.
The assets of DUET are less sensitive (than Ausgrid) I think
from a national security point of view."
DUET's assets include a gas pipeline in Western Australia as
well as suburban power grids that are smaller than Ausgrid's,
the network for Australia's largest city, Sydney.
CKI on Monday said in a statement the DUET purchase would be
done through a consortium that also included related companies
Cheung Kong Property Holdings 1113.HK , CK Hutchison Holdings
0001.HK and Power Asset Holdings 0006.HK .
DUET Chairman Doug Halley said the company believed the
offer fully recognised the value and future growth platform the
management team had created as well as the operating and
financing cost savings available to the CKI-led consortium.
In a report issued on Dec. 5, Morningstar analyst Jennifer
Song said the value accretion available to CKI from its bid was
poised to come primarily from lower debt costs.
($1 = 1.3382 Australian dollars)
(Reporting by Jamie Freed; Editing by Phil Berlowitz and Himani
Sarkar)
((Jamie.Freed@thomsonreuters.com; +61 2 9321 8174;))
Keywords: DUET M&A/CKI