Absence of bidding war kept price low

IT’S a funny old world. Yesterday, four Rio Tinto employees on trial in Shanghai admitted taking bribes during iron ore contract negotiations. The trial has strained relations between China and Australia, but it looks as though the pair are ready to do business again.

Analysts and lawyers expect Australian regulators to wave through a deal that will see PetroChina and partner Royal Dutch Shell snap up Brisbane-based Arrow Energy for A$3.44bn.

The firm’s management recommended the offer after CS CSG, the 50/50 joint venture company owned by Shell and PetroChina, upped the cash portion of its offer from A$4.45 to A$4.70 a share – a 35 per cent premium to Arrow’s pre-bid price.

Shareholders will also receive a single share in Dart, a new company that will house Arrow’s international assets. Analysts value shares in Dart at around 55 Australian cents, meaning the total offer is worth in the region of A$5.25.

Although Shell’s share price fell on news of the deal, CS CSG has got these assets at a fair price. Many hedge funds, who piled into the stock hoping that the cash element of the bid would top A$5.00, were clearly expecting more.

But this deal is unusual: China is desperate to move into the coal seam extraction that Arrow specialises in, because it has to find a way to satisfy its ever-growing thirst for gas. Others are happy to wait on the sidelines, meaning there were no other bidders in the wings.

At any rate, Arrow boss Andrew Davies will be happy. His 5.5m shares are now worth A$25.9m based on yesterday’s bid price.