Li Ka-Shing Group to Purchase Envestra in A$2.4 Billion Deal

May 30, 2014 3:20 am ET

(Updates to add analyst’s comments in third paragraph.)

May 30 (Bloomberg) -- Billionaire Li Ka-shing’s Cheung Kong Group agreed to acquire Envestra Ltd. in a cash deal that values the Australian natural gas distributor at A$2.4 billion ($2.2 billion), edging out a rival share offer from APA Group.

Envestra’s independent directors recommended the A$1.32 a share offer from a group including Cheung Kong Infrastructure Holdings Ltd., the Adelaide-based company said today in a statement. The bid, announced earlier this month, compares with APA’s offer worth A$1.34 a share at today’s close. Envestra advanced 1.1 percent to close at a record A$1.365.

“The market may expect APA will come back with a slightly higher offer,” Adrian Atkins, a Sydney-based analyst at Morningstar Inc. said today by phone. “But I don’t think APA would be that averse to selling their stake and reinvesting into their own business. They’ve had a good return.”

At stake is Envestra’s 23,000 kilometers (14,000 miles) of pipelines that supply gas to customers, mostly in the states of Victoria and South Australia. It comes after Li almost doubled the size of his U.K. gas transmission business in 2012 with the 645 million pound ($1.1 billion) purchase of Wales & West Utilities Ltd. APA added to its networks in Australia with the purchase of Hastings Diversified Utilities Fund in 2012.

“It’s a shootout between cash or scrip,” Nathan Lead, a Brisbane-based analyst at Morgans Financial Ltd., said today by phone. “The upside and downside risk is in the scrip offer.”

Cheung Kong is the second-largest holder in Envestra and APA is the biggest, according to data compiled by Bloomberg.

APA is considering its options, David Symons, a Sydney- based spokesman for the company, said by phone.

Final Dividend

Envestra shareholders also will be entitled to get a final dividend of as much as 3.5 cents per share, the statement said.

CKI’s representatives on the Envestra board, Dominic Chan and Ivan Chan, had recommended in March that holders vote against APA’s offer because it isn’t in their interests. CKI holds 17.5 percent of Envestra. APA Group’s pipelines deliver more than half of Australia’s natural gas.

Under the APA deal that was scheduled to go to a vote this month, shareholders had the option of receiving either 0.1919 APA shares for each Envestra share, or a combination of stock and cash, APA said in December.

APA rose 1.5 percent to close today at A$6.99. Australia’s benchmark index fell 0.5 percent.

CKI, the Hong Kong-based company controlled by Asia’s richest man, owns power and water networks in the U.K. and Australia. As part of a consortium, CKI bought the U.K.’s Northumbrian Water Group in 2011.