The informal meeting was arranged reluctantly by AGL after its Perth-based competitor Alinta bought 19.9% of the companyÆs shares on the stockmarket during a three-day assault orchestrated by Macquarie Bank.
AGL is one of AustraliaÆs oldest companies with a market capitalization of A$8.2 billion, while Perth-based Alinta was only floated in 2000 and has a market capitalization of A$2.8 billion.
AGLÆs board, which is due to release its half-year results next Tuesday, has responded coolly to the takeover having already turned down advances made by Alinta last year. AlintaÆs daring purchase of 19.9% of the company, representing the maximum number of shares it can buy on-market without making a formal bid, was designed to force AGL into discussions.
Alinta is said to have spent about A$1.8 million on the raid, paying A$19.45 per share to institutional shareholders who were contacted by phone during the evening hours. The offer was a handsome premium to AGLÆs closing price of A$18.30 on Monday.
AGL, which is being advised by UBS and Goldman Sachs JBWere, said it would ask for a formal merger proposal from Alinta during the meeting so that the AGL board might form a view about the merits of the proposal. It also requested a protocol for discussing commercial matters between the parties, indicating that it was disappointed about the publicity surrounding the hostile takeover.
With Alinta unable to afford a cash bid, the formal merger proposal is likely to revolve around a scrip offer. But a utilities analyst at JPMorgan says Alinta paper is not worth that much, adding that both companies trade on a price-earnings ratio of close to 20 times forecast earnings.
ôNo matter how many Alinta shares are offered, AGL assets still represent 80% of the combined EBIDTAàso the question of a scrip premium doesnÆt really arise,ö he says. ôAlinta paper doesnÆt represent a significant premium for AGL shareholders because they donÆt get anything other than Alinta management and the proportionately small amount of Alinta assets.ö
He says AGL is on the path to generating significant shareholder value through a proposed demerger of its energy and infrastructure businesses, a plan that was mooted back in October last year and is due to be voted on by shareholders at the end of March. ô[I am] a believer in the demerger and canÆt see that Alinta brings enough to the table to justify derailing the plan at this late stage,ö says the analyst.
Alinta argues that it can generate value for shareholders by introducing structuring synergies, making cost savings and returning tax benefits.
The fact that so many fund managers were prepared to part with their shares during the raid of the last few days suggests two things û they donÆt see another bidder emerging and A$19.45 was a fair price for shares in a company that now faces an uncertain future.
If Alinta canÆt convince AGLÆs board to recommend a scrip bid, some have suggested that Macquarie Bank might step into the fray and help Alinta finance the purchase.
Macquarie Bank used its balance sheet muscle last year to help explosives company Orica overcome US competition rules in its bid for Dyno Nobel. Macquarie used its financial engineering skills to buy the company for $1.7 billion and then on-sell some of the businesses to Orica. It is now planning an Australian listing of the remaining pieces of Dyno Nobel.
On Thursday, AlintaÆs shares were trading at A$10.77 compared to A$10.97 on Monday when the raid started. AGLÆs shares were trading at A$19.08.
