Arrow Says Shell Deal Looks Even More Attractive Amid Tax Plan
Arrow Energy Ltd. said a A$3.5 billion ($2.9 billion) takeover bid by Royal Dutch Shell Plc and PetroChina Co. is a more attractive transaction for shareholders after Australia proposed a new tax on resource projects.
Arrow would face “uncertainty” if the company were to proceed independently with a plan to develop a liquefied natural gas project in Queensland, Shaun Scott, chief executive officer of the Brisbane-based producer, told reporters on a call today. The tax measure threatens to eat into returns of the proposed LNG ventures in the Australian state and make them less viable, analysts including Nik Burns of RBS Morgans have said.
“I think you’ve seen widespread backlash amongst investors and others in the sector,” Scott said. “It’s created a massive amount of uncertainty about taking projects forward.”
Shell and PetroChina agreed in March to buy Arrow’s Australian business for A$4.70 a share in cash. The deal will give Shell access to Arrow’s coal seam gas reserves to support a proposed Curtis Island LNG project, one of more than a dozen in Australia aimed at tapping rising Asian demand for the fuel. Santos Ltd. and Origin Energy Ltd. are among companies planning rival coal-seam gas-to-LNG developments in Queensland.
Arrow investors also will receive shares in a new company, Dart Energy Ltd., holding Arrow’s overseas gas assets and stakes in Australian-listed companies. The acquisition by Shell and PetroChina and the Dart spinoff are both “on plan, on time and on target,” Arrow Chairman John Reynolds said today.
The Shell and PetroChina offer is fair and between 7 percent and 17 percent higher than what the shares are worth, according to Deloitte Touche Tohmatsu, hired by Arrow’s board to evaluate the transaction. The firm in a June 3 report valued Arrow’s business at between A$4.00 and A$4.40 a share.
‘Cash is Certain’
If the proposed resource tax “were not looming we would argue that a higher takeout premium to the implied 7-17 percent would be suitable,” Di Brookman, an analyst at CLSA Asia- Pacific Markets in Sydney, said in a June 3 report.
Arrow declined 1.2 percent to A$4.79 in Sydney trading, compared with a drop of 2.8 percent for the benchmark S&P/ASX 200 Index.
Arrow hasn’t discussed with Shell any change to the terms of the takeover to account for the proposed 40 percent tax on resources profits intended to start in 2012, Scott said today. The money being offered by Shell and PetroChina gives Arrow shareholders certainty, he said. The tax proposal announced May 2 may yet change from its current form, Arrow executives said.
The tax prompted speculation Shell and PetroChina may seek to negotiate a lower price to counter the levy’s impact on earnings from the venture.
Shareholders are still expected to vote on the Shell transaction July 14, Arrow said today.
“With the uncertainty sitting there, in terms of a development scenario versus a certain amount of cash in hand, the thing about cash is that it’s certain,” Scott said. “That would make it look much more attractive than it possibly would have prior to this being announced.”
Monday 7 June 2010
Bloomberg
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