SYDNEY (Jan 16): DUET Group has agreed to recommend an increased US$5.51 billion bid from a consortium led by Cheung Kong Infrastructure Holdings, 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.
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.
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.
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, CK Hutchison Holdings and Power Asset Holdings.
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.
(US$1 = 1.3382 Australian dollars)