Article by Cameron England courtesy of the Australian.
Gina Rinehart’s Hancock Energy has warned investors in its takeover target Warrego Energy that they face management and share price risks if they choose to accept a rival bid from Strike Energy.
Hancock Energy, in a supplementary bidder’s statement on Tuesday, said its offer was “substantially higher than the value of Strike’s scrip’’, despite it’s 28c per share bid lagging Strike’s one for one share offer by a large margin.
Strike is offering one of its shares for each Warrego share, which on Tuesday afternoon put a 33c value on Warrego shares.
But Hancock says this does not tell the full story, pointing out that Strike’s average trading price over the past three months was just 24.7c. “Hancock’s offer means Warrego shareholders are not exposed to future declines in Strike’s share price,’’ its statement reads. “This may result from uncertainties around recoverable gas volumes, development approvals or increased costs.’’
Hancock said taking up Strike’s offer would open shareholders up to risks around potential future funding challenges which “are likely to include substantial funding that is not in place for key developments and onerous debt arrangements’’.
One of these was Strike’s proposed fertiliser project which Hancock said did not yet have funding of between $3bn and $3.5bn, making it “speculative and at conceptual stage only’’.
It also warned Strike’s management “may not have an extensive track record for delivery of large-scale capital projects and there is no certainty it can contract relevant operational expertise in the short to medium-term.’’
Strike managing director Stuart Nicholls, who spent seven years with Shell before heading up Strike, said Hancock’s interest in Warrego’s stake in the West Erregulla gas project, which Strike operates, to his mind represented a vote of confidence in the company’s management.
“It’s interesting that they are now trying to talk it down,’’ he said. “We stand by Strike’s excellent track record of success in the Perth Basin. We are … surprised that Hancock revised its bidders statement to try and apply pressure on Strike’s share price.
“We believe Warrego shareholders are well educated on the merits of Strike’s offer and the value that can realised through the combination of Warrego and Strike’s assets,” he added.
The Hancock bidder’s statement also warned existing Strike shareholders could have their noses put out of joint by being diluted, “which may result in existing Strike shareholders agitating against the Strike board’’.
Both the Strike scrip bid and the Hancock cash bid have few conditions attached, with both companies committing to a “no minimum acceptance’’ condition, which means they will buy any shares they are offered.
Strike, in upping its bid to a one for one offer this week, also revealed it had struck agreements with shareholders which would take its overall holding in Warrego to 32.6 per cent, although the entities, including Regal Funds Management, do have the right to take a superior offer should one eventuate. Hancock has previously committed to paying any shareholders who take up its offer within 10 days.
It warned that the current strength in Strike’s share price “may be temporary and may not be sustainable in the longer term’’.
Strike is a partner with Warrego in the Perth Basin and said this week bringing the two companies together “may provide an opportunity to accelerate development of the West Erregulla gas field and potentially allow for its integration with Strike’s South Erregulla and Mid West low carbon manufacturing precinct.’’
The Hancock offer is scheduled to close on January 31, unless it is extended, while Strike is expecting to put out a bidder’s statement before the end of the year.
Warrego has been granted an extension of time to prepare a target’s statement, given the various bids in the market.
