Cheung Kong Infrastructure Holdings Ltd., the second-largest holder in takeover target Envestra Ltd., signaled its opposition to APA Group’s bid for the rest of the Australian gas distributor, putting the deal in doubt.
CKI’s representatives on the Envestra board, Dominic Chan and Ivan Chan, recommend that holders vote against the offer because it isn’t in their interests, Envestra said today in a statement. The vote is scheduled for mid-May, Des Petherick, Envestra’s company secretary, said by phone today. If CKI votes against the acquisition, the deal wouldn’t go ahead, he said.
Envestra shares fell the most in five years in Sydney on expectations the A$1.4 billion ($1.3 billion) offer will fail. APA, whose pipelines deliver more than half of Australia’s gas, already owns 33 percent of Envestra and operates its networks and pipelines.
“The deal is in trouble,” Paul Johnston, a Melbourne-based analyst at RBC Capital Markets, said today by phone. “Does APA sweeten the deal again to try to get the CKI directors to endorse the bid? That’s the question.”
APA runs the risk of upsetting its shareholders with a higher offer, Johnston said. David Symons, a spokesman for Sydney-based APA, declined to comment.
Envestra fell 8.7 percent today to A$1.15 at the close in Sydney trading, while APA dropped 0.2 percent to A$6.57. Based on APA’s closing price yesterday, the offer is equivalent to A$1.26 a share, Envestra said today.
Cheung Kong doesn’t plan on making a public statement about its voting intentions, according to the Envestra statement. The proposal must be approved by at least 75 percent of Envestra shareholders other than APA, the company said. CKI, which holds 17.5 percent of Envestra, is controlled by Asia’s richest man Li Ka-shing.
Four other directors who aren’t affiliated with APA support the bid, considered “fair and reasonable” by an outside adviser, Envestra said.
APA reached a deal with Adelaide-based Envestra in December to buy the rest of the company after raising its bid. Shareholders will have the option to receive either 0.1919 APA shares for each of their shares, or a combination of stock and cash, APA said in December. That was the equivalent of A$1.17 a share, based on APA’s price at the time of A$6.10.
Dominic Chan is chief financial officer of CKI, and Ivan Chan is chief investment officer, Envestra’s website shows.