The APA Group (ASX: APA) share price is outperforming today after its largest shareholder and several experts voiced support for…
The post APA Group (ASX:APA) share price jumps on strong support for its takeover bid appeared first on The Motley Fool Australia. –
Shares in the gas pipeline owner jumped 1% to $8.64 in morning trade. While that’s on par with the S&P/ASX 200 Index (Index:^AXJO), the APA share price is running ahead of its peers as the risk-on mood of investors is leaving defensive shares behind.
Takeover optimism lifts the APA share price
Investors are upping their bets that APA could become the front runner in the $10 billion takeover tussle for Ausnet.
UniSuper, which owns 14% of APA, is backing its bid even though APA is paying a high price for the electricity infrastructure business.
UniSuper chief investment officer, John Pearce, said the takeover will make APA a more diversified business, reported the Australian Financial Review.
Strategic benefits for the merger
This a strategically important move with the world moving towards decarbonisation. The ASX bidder currently makes all of its revenue from gas. Merging Ausnet’s poles and wires assets will give APA exposure to green energy projects.
More significantly, APA’s cost of debt could fall as investors will view its greener credentials more favourably.
There’s another reason why Pearce likes the idea of APA swallowing Ausnet. The deal would mean APA is likely to abandon plans to acquire gas assets in the US.
Less risky growth strategy for the APA share price
“It’s always more risky doing something overseas relative to your home base,” he told the AFR.
“So if you’re going to pay up for an asset – and you have to pay up for assets wherever you are in the developed world – it has to diversify your business and ideally, it’s going to be in your home base.”
Takeover battle for Ausnet
But the takeover is far from a sure thing. If anything, APA looks to be the underdog in the love triangle. Brookfield also lobbed a bid for Ausnet and has exclusivity on doing due diligence despite its lower offer.
The Canadian infrastructure group is offering $2.50 cash a share for Ausnet. APA is offering cash and scrip that’s worth around $2.60, although the offer price will change with APA’s share price.
The speculation is now that APA will come back with a knockout offer for Ausnet to convince the target to break the exclusivity with Brookfield.
It isn’t only Pearce that is wishing APA success in the takeover battle. Renewable power industry experts also believe that Australia will benefit more if APA beats the Canadians.
This is because there is more transparency with the APA-Ausnet group given that the merged entity will remain ASX listed.
On the other hand, Brookfield has fewer reporting obligations.
Wondering where you should invest $1,000 right now?
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.
*Returns as of August 16th 2021
Sydney Airport (ASX:SYD) share price struggles amid latest takeover blow
ASX 200 (ASX:XJO) midday update: Transurban falls, Premier Investments jumps
Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended APA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.