The Boards of Queensland Gas Company Limited (QGC) and Sunshine Gas Limited have jointly announced an agreement for an offer by QGC for all the issued shares in Sunshine (the Offer).
QGC has also entered into a Pre Bid Acceptance Agreement with Sunshine’s largest shareholder in respect of 15 per cent
of Sunshine’s issued shares.
• Queensland Gas Company Limited (QGC) to offer to acquire all the issued shares of Sunshine Gas Limited (Sunshine). Sunshine shareholders will be offered the following alternatives, both of which value Sunshine at more than $830 million:
1. Five QGC shares for every eight Sunshine shares (Alternative 1); or
2. $1.65 cash per Sunshine share and two QGC shares for every seven Sunshine shares (Alternative 2)
• Alternative 1, based on QGC’s closing price on 19 August 2008, represents a premium of 22.7 per cent on Sunshine’s last traded price and 34.4 per cent based on Sunshine’s one month Volume Weighted Average Price (VWAP)
• Alternative 2, based on QGC’s closing price on 19 August 2008, represents a premium of 31.1 per cent on Sunshine’s last traded price and 43.6 per cent based on Sunshine’s one month VWAP
• QGC will achieve capacity to pursue further domestic gas opportunities, including the development of more gas-fired power stations in New South Wales and Queensland and the production of more gas and more effective competition in the domestic gas market
• QGC’s Offer is unanimously recommended by voting Directors¹ of the Sunshine Board unless there is a superior proposal or the Independent Expert concludes that the Offer consideration is not fair and reasonable
• The Offer is supported by the largest Sunshine shareholder, which has entered into a Pre Bid Acceptance Agreement with QGC in respect of 15 per cent of Sunshine’s issued capital
• Sunshine’s coal seam gas acreage (CSG) will significantly increase QGC’s equity-owned 2P (Proved and Probable) reserves by 469 PJ to 2,401 PJ and its equity-owned 3P (Proved, Probable and Possible) reserves by 1,097 PJ to 6,827 PJ
¹ Voting Directors of Sunshine means all of Sunshine’s non-conflicted Directors
QGC Managing Director Richard Cottee and Sunshine Managing Director Tony Gilby said today that, if accepted, the Offer would create significant value for both sets of shareholders and build on the excellent foundations laid by both companies.
Sunshine shareholders will have a choice of either:
• Five QGC shares for every eight Sunshine shares (Alternative 1)
or
• $1.65 cash per Sunshine share plus two QGC shares for every seven Sunshine shares (Alternative 2)
"A combination of QGC and Sunshine will drive further upside from Sunshine’s extensive and promising coal seam gas acreage, which has certified 2P (Proved and Probable) reserves already totalling 469 PJ," Mr Cottee said.
"These additional reserves can add powerful momentum to QGC's strategy to develop, own and operate state-of-the-art cleaner gas-fired power stations in Australia.
"Vigorous competition in the domestic market is vitally important to QGC - and our strategy will ensure a reliable electricity supply while also being of significant benefit to the environment in a carbon-constrained economy.
"Furthermore, wholly-owned 2P reserves of the combined group totalling 2,401 PJ, on top of a dedicated drilling program to prove up additional reserves, would also give an exciting boost to QGC’s Queensland Curtis LNG Project with BG Group.
"QGC can increase its financial returns by supplying additional CSG to the Gladstone-based plant, which will have potential capacity of three liquefied natural gas (LNG) production trains totalling up to 12 million tonnes a year of LNG."
Mr Gilby said that it was the unanimous recommendation of the voting Directors¹ of the Board of Sunshine that the Offer be accepted by all Sunshine shareholders, in the absence of a superior proposal and so long as the Independent Expert concludes the consideration is fair and reasonable.
"The combination brings together two like-minded Queensland companies with common goals and cultures," Mr Gilby said.
"Sunshine has established independently certified gas reserves at its 100 per cent-owned Lacerta CSG project near Roma and has extensive acreage with considerable exploration potential.
"Sunshine's shareholders will also have the ability to share in any upside in improved CSG pricing and a multi-train LNG development through QGC equity. QGC is a significantly larger company with greater market liquidity and prospects for growing shareholder value."
Under a Pre Bid Acceptance Agreement, Sunshine's major shareholder (with 21.6 per cent) has agreed to accept the QGC Offer for a 15 per cent interest in Sunshine and intends to accept the Offer consideration wholly in the form of QGC shares. Under Alternative 1, the implied value of QGC's Offer, based on QGC’s closing price on 19 August, is $837 million, or $2.70 per share. This represents a premium of 22.7 per cent to the last traded price of Sunshine shares and 34.4 per cent to the Sunshine one month (VWAP).
Under Alternative 2, the implied value of QGC's Offer, based on QGC's closing price and Sunshine on 19 August, is $895 million, or $2.88 per share. This represents a premium of 31.1 per cent to the last traded price of Sunshine shares and 43.6 per cent to the Sunshine one month VWAP.
The Board of QGC believes that the Offer consideration in both Alternative 1 and Alternative 2 is fair and appropriate based on recent transactions and market valuations, ensuring that both QGC and Sunshine shareholders benefit equally as a result of the Offer.
The Offer (and QGC’s intention to make the Offer) is subject to a 90 per cent minimum acceptance condition and other defeating conditions usual in such transactions (as set out in the Schedules to the TBIA).
The Offer, if accepted, will boost QGC's:
• 1P equity reserves from 487 PJ to 531 PJ - an increase of more than 9 per cent
• 2P equity reserves from 1,932 PJ to 2,401PJ - an increase of more than 24 per cent
• 3P equity reserves from 5,730 PJ to 6,827 PJ - an increase of more than 19 per cent
Synergies and upside for QGC
QGC is a rapidly-evolving integrated energy business strategically positioned to meet rising demand for its abundant coal seam gas, cleaner power and abundant water. It holds interests in about 10,000 square kilometres of production and exploration permits in the gas-rich Surat Basin.
Sunshine's 30,000 square kilometres of acreage will expand QGC’s exploration and development footprint to an area totalling about 40,000 square kilometres, spanning the Surat Basin and the Bowen Basin from Southern to Central Queensland.
Mr Cottee said that the acquisition of Sunshine would help QGC realise opportunities to create additional value for shareholders by:
• Furthering QGC's fundamental strategy to grow into a leading supplier of gas-fired electricity in the domestic market. Enlarged reserves will produce more gas, and more effective gas competition, for the domestic market
• Providing access to fully develop a larger portfolio of exploration and production permits across Queensland's premier gas basins
• Ensuring independent certified reserves and production for new projects in addition to those covered by agreements with BG Group, QGC’s Queensland Curtis LNG partner
• Developing an expanded resource base to support an accelerated multi-train LNG project with ensuing capital and operating synergies
Capital gains tax rollover relief is expected to be available for Sunshine shareholders in respect of the QGC shares that they would receive under the Offer, subject to an 80 per cent acceptance. QGC will apply to the Australian Taxation Office to seek confirmation of this position for Sunshine shareholders.
QGC will begin preparing its Bidder’s Statement to be sent to Sunshine shareholders; and Sunshine will begin preparing its Target’s Statement.
If, during or at the end of the offer period, QGC has acquired a relevant interest in 90 per cent of Sunshine shares, QGC will proceed to compulsorily acquire all outstanding Sunshine shares.
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