Shares in the gas pipeline owner jumped 1% to $8.64 in morning trade. While that’s on par with the S&P/ASX 200 Index (Index:^AXJO), the APA share price is running ahead of its peers as the risk-on mood of investors is leaving defensive shares behind.
Takeover optimism lifts the APA share price
Investors are upping their bets that APA could become the front runner in the $10 billion takeover tussle for Ausnet.
UniSuper, which owns 14% of APA, is backing its bid even though APA is paying a high price for the electricity infrastructure business.
UniSuper chief investment officer, John Pearce, said the takeover will make APA a more diversified business, reported the Australian Financial Review.
Strategic benefits for the merger
This a strategically important move with the world moving towards decarbonisation. The ASX bidder currently makes all of its revenue from gas. Merging Ausnet’s poles and wires assets will give APA exposure to green energy projects.
More significantly, APA’s cost of debt could fall as investors will view its greener credentials more favourably.
There’s another reason why Pearce likes the idea of APA swallowing Ausnet. The deal would mean APA is likely to abandon plans to acquire gas assets in the US.
Less risky growth strategy for the APA share price
“It’s always more risky doing something overseas relative to your home base,” he told the AFR.
“So if you’re going to pay up for an asset – and you have to pay up for assets wherever you are in the developed world – it has to diversify your business and ideally, it’s going to be in your home base.”
Takeover battle for Ausnet
But the takeover is far from a sure thing. If anything, APA looks to be the underdog in the love triangle. Brookfield also lobbed a bid for Ausnet and has exclusivity on doing due diligence despite its lower offer.
The Canadian infrastructure group is offering $2.50 cash a share for Ausnet. APA is offering cash and scrip that’s worth around $2.60, although the offer price will change with APA’s share price.
The speculation is now that APA will come back with a knockout offer for Ausnet to convince the target to break the exclusivity with Brookfield.
It isn’t only Pearce that is wishing APA success in the takeover battle. Renewable power industry experts also believe that Australia will benefit more if APA beats the Canadians.
This is because there is more transparency with the APA-Ausnet group given that the merged entity will remain ASX listed.
On the other hand, Brookfield has fewer reporting obligations.