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Pacific Energy Limited (ASX:PEA), a leading player in the power generation sector, works on a build-own-operate model for supplying power to industries like mining. The company also supplies power to remote townships in Western Australia. Moreover, through its businesses Pacific Energy Hydro and NovaPower, the company is getting growth opportunities from their growing presence in the east coast.
On 24 July 2019, the PEA announced to have signed a SID with QGIF Swan Bidco Pty Ltd for the purchase of Pacific Energy by way of a scheme of arrangement. The scheme valued the equity of PEA at $ 422 million and an EV of $ 487 million. QGIF Swan Bidco Pty Ltd is a subsidiary of funds managed or advised by QIC Private Capital Pty Ltd, which is among the largest institutional investment managers in Australia. QIC, which has approximately $ 80 billion in funds under management, operates with more than 1,000 employees and have offices in the United States, London and Copenhagen. Moreover, it is the state-owned Queensland Investment Corporation.
Transaction Details:
For this acquisition, QIC has offered a total consideration of $ 0.975 per share in cash. This will include $ 0.96 per share, which will be paid by QIC and a final fully franked dividend of $ 0.015 per share, which will be paid by PEA. Pacific Energy can declare a special dividend before the scheme implementation date, which will be the week starting from 4 November 2019. How much this special dividend would be has not been decided, though the company will take the decision in the due course. The amount of this special dividend given to PEA shareholders will reduce the total consideration accordingly; however, overall, from this deal, the total cash which the shareholders of PEA will receive would be equal to $ 0.975 per share.
Following the completion of the acquisition, there will be no change in the leadership or operations of Pacific Energy. Moreover, the takeover is unlikely to have an impact on the companyâs five wholly owned subsidiaries, including Kalgoorlie Power Systems and Contract Energy. Moreover, this takeover is expected to have no impact on PEAâs operations, customers and employees. Pacific Energy had also received a takeover bid from OPTrust, a pension fund investor based in Canada. The only condition to this takeover is that the acquisition is not subject to any financing or due diligence conditions.
Offer Price:
The total cash consideration of 97.5 cents per share is significantly higher than the highest price PEA stock must have reached since the acquisition of Kalgoorlie Power Systems in 2009. The offer price by QGIF Swan Bidco Pty Ltd represents a 35.4% premium to the last close price of $ 0.72 of the PEA stock on 22 July 2019, a 43.6% premium to the volume weighted average price of $ 0.679 of PAE shares over the last 30 days and a 50.1% premium to the volume weighted average price of $ 0.65 for PAE shares over the last 90 days.
Recommendation by PEA Board & Its Shareholders:
The offer price is significantly higher than the stock price of PEA and the offer is being considered best for maximising the shareholdersâ value. Thus, Pacific Energyâs Board has unanimously recommended in favour of this takeover. As per the standard qualifications, Mr. Kenneth Hall, who is the Executive Director of Pacific Energy and the founder of Kalgoorlie Power Systems, has already given his approval and confirmation regarding his intention to vote in favour of the scheme. This is in respect of 48.7% of Pacific Energy shares that are being currently held or controlled by Mr. Kenneth Hall. Each of the remaining Directors of Pacific Energy have also confirmed and given their approval for their intention to vote all their shares of Pacific Energy which they are holding or having control in favour of this takeover scheme after meeting the standard qualifications.
Scheme Implementation Deed (SID):
The application of the SID can be done after the completion of a number of customary conditions. The conditions include getting the approval of the shareholders of Pacific Energy and the Court. Moreover, there should be no material adverse change required or done or there should be no prescribed occurrence. Also, there should be an independent expert, who can conclude that this takeover scheme is in the best interest of shareholders of Pacific Energy and there should not be any change or any withdrawal to this conclusion. The SID includes the customary exclusivity provisions and also includes provisions for offering certain notification and matching rights in favour of QIC. Moreover, the Scheme Implementation Deed contains the details of the situations under which a reimbursement fee of $ 4.1 million (approximately 0.98% of the aggregate implied equity value of Pacific Energy under the scheme) may be payable by Pacific Energy.
The company is likely to send a scheme booklet to shareholders in September 2019. The scheme booklet would contain the details related to the scheme, reasons for getting the Directorsâ unanimous recommendation, information regarding the scheme meeting and the report from the independent expert. The shareholders of Pacific Energy will be given the opportunity to vote on the scheme. For the voting process, a meeting is likely to take place in Perth in the week starting from 14 October 2019. Once the conditions related to the scheme get satisfied and shareholders give their thumbs up, the scheme would get implemented in the first week of November 2019.
Sternship Advisers and UBS AG, Australia Branch are acting as the financial advisers of Pacific Energy, while the legal adviser of the company is DLA Piper. Gresham Advisory Partners is the financial adviser of QIC and Allens is its legal adviser.
Stock Recommendation:
PEA stock has given decent returns of 51.94%, 53.13% and 63.10% in the last one month, three months and six months. On 26 July 2019, the stock was trading flat at $ 0.980 with a daily volume of 1.08 million shares (as at AEST: 12:52 PM). The company has a market cap of $ 421.49 million and 430.09 million outstanding shares. It has an annual dividend yield of 1.02% and a PE ratio of 33.33x, while its EPS stands at $ 0.029.
The takeover proposal from QIC gives the opportunity to Pacific Energy shareholders to realise their investment value for the shares held by them.
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