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Hostile $777m bid for Infigen may draw rival

Angela Macdonald-Smith
Angela Macdonald-SmithSenior resources writer

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A real prospect of a bidding war over Infigen Energy has emerged after a Philippines-linked investment company sprang an unsolicited $777 million takeover offer on the renewable energy generator on Wednesday morning, just hours after securing a 12.82 per cent interest through an after-market share raid.

Infigen shares surged 36.4 per cent after UAC Energy Holdings, controlled by giant Philippine conglomerate Ayala Corporation, made the hostile approach, flagging an off-market bid at 80¢ a share that would have no minimum acceptance level. The stock closed just higher, at 80.5¢.

Infigen Energy has long been seen as a potential takeover target. Bloomberg

The board of Infigen, whose major shareholder is UK-based activist shareholder The Children's Investment Fund (TCI), is considering its response, said chief executive Ross Rolfe, declining to comment ahead of a view being formalised.

The offer, which was first reported in The Australian Financial Review's Street Talk column and values Infigen at more than $1.2 billion including debt, represents a premium of 36 per cent to Tuesday's close for the stock of 59¢.

Analysts described the price as "attractive" and "full" but are suggesting the move will prompt potential rivals to emerge.

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"We think that IFN could force out counter-bidders looking to acquire an interest in operating wind farms, particularly given recent difficulties faced by new wind farms in getting developed," said RBC Capital Markets' James Nevin.

Sources point to players such as large Spanish utility Iberdrola, which plunged into Australian renewables in January with a $500 million commitment to build a project in Port Augusta, and Shell, which is building a lower-carbon energy business on the east coast and last year acquired business power retailer ERM Power for $617 million. France's Total has also entered electricity retailing in Australia, while Brookfield has long kept a close eye on Infigen, although it sold its stake earlier this year.

Industry Funds Management is seen as an unlikely bidder given its unsuccessful foray into renewables through Pacific Hydro, while Infigen's still-significant exposure to the merchant electricity market could deter other infrastructure funds. Infigen is being advised by Goldman Sachs and Lazard, which canvassed corporate interest in the generator several years ago, with an eye to Asian and European parties.

Key to the outcome will be TCI, which only last week increased its long-standing stake in Infigen to 33.09 per cent. It has previously been said to be a seller provided a reasonable control premium was involved.

Complicating the situation are complex financing arrangements for Infigen, the former Babcock & Brown Wind Partners, which only last year made enough headway on debt to pay a dividend.

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UAC chairman Anton Rohner said the acquisition of Infigen would be an "attractive" opportunity in renewables.

Mr Rohner said the businesses of Infigen and the UAC venture between UPC and AC Renewables Australia were "complementary", while UAC has ready access to capital and the expertise to support the target's pipeline of projects.

UAC, which is 75 per cent owned by AC Energy Group, part of Ayala, said the offer was "particularly attractive" given recent declines in electricity prices in Australia and Infigen's relatively high debt costs, as well as its "limited" track record on dividends. It also pointed to Infigen's moves to slow development of its project pipeline.

The other 25 per cent of UAC is owned by UPC Renewables Australia, itself a venture between solar and wind farm developer UPC Renewables and AC Energy, giving Ayala also an indirect stake. The partners have developed a portfolio of wind, solar and hydro projects in Australia and Asia.

JPMorgan energy analyst Mark Busuttil said he was not surprised at the corporate appeal of Infigen, noting that its current share price implies a value for its wind farms that is well below replacement cost.

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Mr Busuttil said that although the suggested offer of 80¢ a share looked "full", it "is possible that the actions prompt competition for Infigen's renewable assets".

He calculated the offer implies a value of $2000 per kilowatt for Infigen's wind farms, while Infigen's stock price before the bid implied a value of $1669/kW, almost 20 per cent below the cost of building the farms new.

Infigen has been expanding its portfolio to include battery storage, and last year acquired a gas-fired power plant in Sydney's west as part of a strategy to increase direct sales of "firmed" renewable power to industrial customers.

UAC's stake includes a direct 9.9 per cent purchase of stock after the market close on Tuesday, and a 2.92 per cent stake held through its adviser Credit Suisse, which it can take ownership of once foreign investment approval is obtained. UAC signalled it could raise its interest to 19.9 per cent through the arrangement with Credit Suisse.

Angela Macdonald-Smith writes on the resources industry with a focus on energy, including gas, oil, electricity and renewables. Connect with Angela on Twitter. Email Angela at amacdonald-smith@afr.com

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