BG Launches £6.7bn Bid for Australian Energy Company

BG Group has launched its first hostile bid, going direct to shareholders with a A$13.8bn (£6.7bn) cash offer to take over Origin Energy after being rebuffed by the Australian firm last month.

Frank Chapman, chief executive of the British oil and gas group, said the price offered "doesn't need to increase" but left the door open for a higher bid by adding that he reserved the right to go higher to secure a valuable energy source that could be turned into liquefied natural gas.

Justifying the decision to go hostile, he said: "We have reflected very carefully and have decided to put this directly to shareholders because we believe this is a very strong and compelling proposition and shareholders should be able to decide for themselves."

Shares in Origin, which have surged more than 85% this year, put on an extra 6% to a record A$16.48 as investors banked on the offer - the second-largest foreign takeover of an Australian company - being raised at a time when coal seam gas assets are in high demand.

BG nearly won an agreement to buy Origin earlier this year only to find Origin pulling out at the last moment after watching Petronas of Malaysia invest A$2.5bn in another big coal seam gas project operated by one of its Australian rivals, Santos.

Origin, a power generator and one of the country's biggest energy retailers, said that on the basis of the Petronas deal its coal seam gas reserves alone were worth A$16bn. BG yesterday poured scorn on that suggestion, saying the two businesses could not be compared.

While Santos had an established liquefied natural gas scheme to support its coal seam gas reserves, Origin had no LNG scheme to sell. "Nor today does it have sufficient reserves to support a viable LNG scheme," said Chapman.

He insisted that the offer price reflected the value of Origin's integrated energy business and the long-term prospects of its coal seam gas reserves. Chapman argued that the increase in reserves had only come about by changing the way the figures were calculated.

The BG arguments produced a statement from the Origin board urging shareholders to take no action.

But Campbell McComb, a fund manager at Armytage Private which holds Origin's shares, said he believed BG's offer was a good deal as there would be significantly higher risks for Origin to bring its coal seam gas assets on stream.

Analysts were also supportive of the BG move. "It's no surprise BG would launch a hostile bid. It's a very generous offer and I think some shareholders may be swayed and may decide to take the money and run," said Gavin Wendt, head of research at Fat Prophets Funds Management.

"But there's also a chance BG's hostile move may drag out other parties interested in Origin's coal seam gas assets."

Chapman said BG executives had meetings with some Origin shareholders and would meet others in coming days.

After rejecting BG's bid, Australia's largest coal seam gas producer said it would focus on how to get the best value from its reserves, possibly through partnerships to supply an LNG plant or even through a break-up of the company.

BG spent £300m buying a stake in a Queensland seam gas company in February to build up its LNG feedstock in the fast-growing Pacific region.