Sinopec giving up US$2.2b bid for China Gas seen as defeat
Source: Agencies |
October 16, 2012, Tuesday
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Print Edition
Print Edition
SINOPEC has dropped its US$2.2 billion offer with ENN Energy Holdings for China Gas due to regulatory hurdles, a defeat for acquisitive Chairman Fu Chengyu in what would have been the first unsolicited takeover in Hong Kong.
Instead, Sinopec entered into a strategic agreement with China Gas Holdings Ltd to jointly develop natural gas and liquefied petroleum gas in China. The cooperation agreement seems like a face-saving move for Asia's largest refiner, industry watchers said.
Unsolicited deals are rare in China, and one from a state-run enterprise is even more difficult to engineer. For Sinopec's Fu, being turned down by the target company after a 10-month courtship was embarrassing as it raised questions whether the original offer in December was made hastily, observers said.
"Chairman Fu has ended up in a reasonable position. He wanted access to downstream, he has got it. He hasn't lost face, he has ended as a friend of China Gas," one person with direct knowledge of the situation said.
The Sinopec-ENN consortium abandoned the offer after failing to secure regulatory approval for the plan, it said in a statement yesterday. The filing gave no details.
Opposition from China Gas's management to the bid also played a part in the dropping of the bid.
"The reaction from China Gas' board was not anticipated by us," said Wang Dongzhi, executive director and vice president of ENN. "Given the difficulty of obtaining the trade ministry's approval and the challenge of integrating China Gas' portfolios under a hostile deal, we chose to withdraw the offer."
Industry sources linked the trade ministry's reluctance to approve the offer to China's policy in May to encourage private investment across industries, with a special focus on heavily state-controlled electricity, oil and natural gas sectors.
Sinopec and ENN underestimated China Gas's ability to stand up and fight, observers said. Sinopec, which already owns 5 percent of China Gas, could have averted some of the complications by buying China Gas stake in the open market instead of negotiating with some of the unhappy shareholders, according to the observers.
In December, Sinopec and ENN, advised by Citigroup, made a conditional cash offer of HK$3.50 (45 US cents) for China Gas.
The piped-gas distributor rejected the offer, saying it failed to reflect the true value of the Hong Kong-listed company.
Instead, Sinopec entered into a strategic agreement with China Gas Holdings Ltd to jointly develop natural gas and liquefied petroleum gas in China. The cooperation agreement seems like a face-saving move for Asia's largest refiner, industry watchers said.
Unsolicited deals are rare in China, and one from a state-run enterprise is even more difficult to engineer. For Sinopec's Fu, being turned down by the target company after a 10-month courtship was embarrassing as it raised questions whether the original offer in December was made hastily, observers said.
"Chairman Fu has ended up in a reasonable position. He wanted access to downstream, he has got it. He hasn't lost face, he has ended as a friend of China Gas," one person with direct knowledge of the situation said.
The Sinopec-ENN consortium abandoned the offer after failing to secure regulatory approval for the plan, it said in a statement yesterday. The filing gave no details.
Opposition from China Gas's management to the bid also played a part in the dropping of the bid.
"The reaction from China Gas' board was not anticipated by us," said Wang Dongzhi, executive director and vice president of ENN. "Given the difficulty of obtaining the trade ministry's approval and the challenge of integrating China Gas' portfolios under a hostile deal, we chose to withdraw the offer."
Industry sources linked the trade ministry's reluctance to approve the offer to China's policy in May to encourage private investment across industries, with a special focus on heavily state-controlled electricity, oil and natural gas sectors.
Sinopec and ENN underestimated China Gas's ability to stand up and fight, observers said. Sinopec, which already owns 5 percent of China Gas, could have averted some of the complications by buying China Gas stake in the open market instead of negotiating with some of the unhappy shareholders, according to the observers.
In December, Sinopec and ENN, advised by Citigroup, made a conditional cash offer of HK$3.50 (45 US cents) for China Gas.
The piped-gas distributor rejected the offer, saying it failed to reflect the true value of the Hong Kong-listed company.
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