Gases group BG has stepped into the takeover battle for Australia's Pure Energy, a coal seam gas specialist.
BG is offering $538m for the business, topping an existing bid by Australia's Arrow Energy. Arrow - where Royal Dutch Shell has a stake - holds 19.9% of Pure while BG has 10%, so the outcome is by no means a foregone conclusion. The move is the third time in recent months BG has tried to expand in Australia. It bought Queensland Gas last year, after failing in an earlier bid to buy Origin Energy. Evolution Securities said:
"Significantly, with it's 10% stake in Pure Energy, BG has more or less blocked Arrow's path to a successful offer as Arrow has a 90% minimum acceptance which, not surprisingly, BG has said it will not accept.
"At $70 a barrel for oil long term our valuation [for BG] with a bid premium, is 1605p, 70% above the current price. Even with no bid premium, our sum of the parts at $70 a barrell is 1267p. Assuming $55 a barrel long term the sum of the parts values are 1136p and 1441p respectively. If the shares don't perform on the back of the business fundamentals then the risk of a bid provides a backstop. We keep our buy recommendation and price target of 1600p."
News of the bid, however, has pushed BG's shares 13p lower to £10.72 at the moment.
Over at the miners, Rio Tinto has slipped 36p to £19.21. The company announced that director Jim Leng had quit and would not become chairman as planned, prompting talk of disputes within the company about how to reduce its debt by its $10bn target by the end of the year. Rio is in talks with a major shareholder, Chinese aluminum group Chinalco, about swapping assets. There were also reports today from Australia that Rio is in talks with Japanese trading company Mitsui & Co over the sale of an unidentified asset, possibly its 75% stake in coal producer Coal & Allied Industries.
Elsewhere BSkyB slipped 17.75p to 468.25p as Cazenove downgraded to in-line, following Friday's news it has won five out of six Premier League packages. Investors are concerned this could put additional pressure on profits. Investec issued a hold note, saying:
"The good news is Sky tightens its hold on football further with another Premier League package win for 2011. The main unknown (and potentially bad news) is that Sky pays more, that is £103m a year for more live rights. We must make some assumptions on revenue upside to monetise this but are unclear on the quantum and other possible cost offsets - if at all. The danger is that Sky just adds to costs, hitting margin. We would take profit into strength."
Also heading lower is mobile phone group Vodafone, down 1.55p to 136.85p after it said it would merge its Australian business with that of rival Hutchison Whampoa.
