A Hong Kong-based jewellery retailer and luxury yacht dealer
prepared to pay more than professional investors for Western Australian
retailer Alinta Energy has snapped up what would have been this year's
biggest initial public offering candidate.
The surprise $4 billion deal between Chow Tai Fook Enterprises and the TPG-led group of shareholders in Alinta was first reported by Street Talk. It came just after the gas and electricity retailer and power generator deferred the release of a prospectus for its public float.
Alinta chief executive Jeff Dimery, who will remain with the business, said that after getting feedback from fund managers canvassed on the IPO, it became obvious that the sale to CTFE "was going to be the superior outcome".
"At the end of the day we felt on indications of the price range that the true value of the company wasn't being reflected in what was being fed back to us and a trade sale looked more attractive," Mr Dimery told The Australian Financial Review.
The surprise $4 billion deal between Chow Tai Fook Enterprises and the TPG-led group of shareholders in Alinta was first reported by Street Talk. It came just after the gas and electricity retailer and power generator deferred the release of a prospectus for its public float.
Alinta chief executive Jeff Dimery, who will remain with the business, said that after getting feedback from fund managers canvassed on the IPO, it became obvious that the sale to CTFE "was going to be the superior outcome".
"At the end of the day we felt on indications of the price range that the true value of the company wasn't being reflected in what was being fed back to us and a trade sale looked more attractive," Mr Dimery told The Australian Financial Review.
Portfolio diverse
The diverse portfolio
of CTFE, which has yet to get foreign investment approval for the
takeover, includes the first Ferrari dealership in mainland China, a
jewellery chain with over 2000 outlets and a Princess Yachts dealership,
as well as holdings in technology start-ups including Snapchat,
Spotify, Uber and Airbnb.
Controlled by the Cheng Family, ranked number 58 in Forbes World's Billionaires list in 2016, the group's main interests are in property and infrastructure.
It is understood to have been attracted to Alinta to advance two prongs of its strategy: expand in energy, and expand in Australia. Its local interests until now have been limited to a stake in a hotel and as a joint-venture partner to The Star Entertainment Group to develop the new $3 billion Brisbane casino.
The deal price represents a multiple between enterprise value and 2017-18 forecast earnings before interest, tax, depreciation and amortisation of about 9.5 times. That compares with AGL Energy's multiple of about 10 times, and within the range targeted by the IPO.
Controlled by the Cheng Family, ranked number 58 in Forbes World's Billionaires list in 2016, the group's main interests are in property and infrastructure.
It is understood to have been attracted to Alinta to advance two prongs of its strategy: expand in energy, and expand in Australia. Its local interests until now have been limited to a stake in a hotel and as a joint-venture partner to The Star Entertainment Group to develop the new $3 billion Brisbane casino.
The deal price represents a multiple between enterprise value and 2017-18 forecast earnings before interest, tax, depreciation and amortisation of about 9.5 times. That compares with AGL Energy's multiple of about 10 times, and within the range targeted by the IPO.
Alinta's advisers, Lazard, have pointed to estimated EBITDA for 2016-17 of $380 million, rising to $417 million in 2017-18.
Some investors had pointed to risks they saw in Alinta's business, including its ability to defend its market share in Western Australian gas retailing from strong new players set to enter the WA retailing sector, including AGL Energy and Origin Energy. Alinta owns power stations in three other states and New Zealand and its retail business serves 790,000 households and businesses. It also owns transmission lines and gas pipelines.
Some investors had pointed to risks they saw in Alinta's business, including its ability to defend its market share in Western Australian gas retailing from strong new players set to enter the WA retailing sector, including AGL Energy and Origin Energy. Alinta owns power stations in three other states and New Zealand and its retail business serves 790,000 households and businesses. It also owns transmission lines and gas pipelines.
Outlook questions
Morningstar analyst Adrian Atkins also pointed to question marks around the long-term outlook for Alinta's gas-fired power stations which he said were higher cost compared to the coal generators held by AGL Energy or the hydropower plants of some New Zealand generators.
Mr Atkins said he
didn't consider Alinta warranted the "economic moat" tag that the house
uses to distinguish high-quality companies.
Mr Dimery said CTFE is fully supportive of Alinta's existing strategy and is prepared to invest to allow it to grow its retailing and generation business.
CTFE "will retain the existing Alinta Energy senior management team and grow its business by pursuing appropriate investment opportunities in the Australian energy market as they arise", the company said in a statement.
But with only relatively small interests so far in the energy sector, comprising about 2500 megawatts of power plants in China, CTFE is a novice in the Australian energy sector, where investors and industry players have been pointing to risks given uncertainty on long-term energy and climate policy, and increased government intervention.
Mr Dimery said CTFE is fully supportive of Alinta's existing strategy and is prepared to invest to allow it to grow its retailing and generation business.
CTFE "will retain the existing Alinta Energy senior management team and grow its business by pursuing appropriate investment opportunities in the Australian energy market as they arise", the company said in a statement.
But with only relatively small interests so far in the energy sector, comprising about 2500 megawatts of power plants in China, CTFE is a novice in the Australian energy sector, where investors and industry players have been pointing to risks given uncertainty on long-term energy and climate policy, and increased government intervention.
Alinta's IPO was itself a "Plan B" – an original trade sale process was scrapped after interest from AGL Energy and China's Huadian failed to develop into an offer acceptable to Alinta's shareholders.
A submission has been lodged to the Foreign Investment Review Board and CTFE said it wouldn't comment further until the transaction completed.
FIRB approval for Chinese-linked bidders for energy assets has become more uncertain since last year's rejection of a Chinese and Hong Kong-based bidder for NSW distributor Ausgrid, but Alinta assets are expected to raise fewer concerns than Ausgrid. China Huadian is understood to have secured FIRB approval for its tilt at Alinta before it withdrew from the process.
The target for completion of the deal is the end of April.
A submission has been lodged to the Foreign Investment Review Board and CTFE said it wouldn't comment further until the transaction completed.
FIRB approval for Chinese-linked bidders for energy assets has become more uncertain since last year's rejection of a Chinese and Hong Kong-based bidder for NSW distributor Ausgrid, but Alinta assets are expected to raise fewer concerns than Ausgrid. China Huadian is understood to have secured FIRB approval for its tilt at Alinta before it withdrew from the process.
The target for completion of the deal is the end of April.
Mr Dimery said CTFE
will put in place a local board for Alinta to sit above the organisation
and work with him and his senior team.
"They expect me to deliver on the strategic plan that we presented to them," he said.
That plan includes defending and growing Alinta's strong position in Western Australian energy retailing amid a pick-up in competition.
Mr Dimery said Alinta had been progressing towards becoming an investment-grade company as part of the IPO plan and that would continue. However plans for a refinancing have been put on hold pending discussions with the new owners.
He said Alinta's customers should initially see no difference under the new ownership, but they should benefit in the longer term as investments were made.
"They are committed to ensuring the energy needs of Alinta's customers continue to be met and intend to grow the business by pursuing value accretive investment opportunities in the Australian energy market as they arise," Alinta said in a statement.
"They expect me to deliver on the strategic plan that we presented to them," he said.
That plan includes defending and growing Alinta's strong position in Western Australian energy retailing amid a pick-up in competition.
Energy investments
It also involves expanding in power generation for industrial customers in the Pilbara region, more than doubling Alinta's east coast retailing market share, and strengthening the vertical integration of the company's position in energy supply through investments in thermal power plants and renewable energy.Mr Dimery said Alinta had been progressing towards becoming an investment-grade company as part of the IPO plan and that would continue. However plans for a refinancing have been put on hold pending discussions with the new owners.
He said Alinta's customers should initially see no difference under the new ownership, but they should benefit in the longer term as investments were made.
"They are committed to ensuring the energy needs of Alinta's customers continue to be met and intend to grow the business by pursuing value accretive investment opportunities in the Australian energy market as they arise," Alinta said in a statement.
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