DUET Group to buy Energy Developments Ltd for $1.4b in cash

In an announcement to the market yesterday, Duet, which is an Australian energy infrastructure group, said that it has entered into a scheme implementation deed with Energy Developments. That means that for every 2.69 Duet shares you own, you will be entitled to acquire one more at a price of $2.02.

The acquisition, expected to complete in October, would immediately increase cash flow for DUET, which upgraded its 2015-16 dividend guidance to 18c per security from 17.5c, and forecast higher payouts in 2017 and 2018.

DUET chief executive David Bartholomew said Energy Developments was “a strong strategic fit” with DUET and that the takeover would diversify cash flows and “provide an attractive source of growth”.

“Really it’s got that same thing that the rest of the DUET portfolio has, which is long-term, contracted, secure revenues and cash flows”, he said.

Commonwealth Bank of Australia analyst William Allott said the acquisition price “doesn’t seem unreasonable”, but said DUET probably didn’t underpay either, given it is facilitating an exit for private equity firm Pacific Equity Partners.

The offer implies a market capitalisation of $1.41 billion and an enterprise value of $1.92bn, the companies said.

“Our central scenario is that DUET’s solid track record of providing support to the operating assets’ financial profiles when required will continue”, Moody’s analyst Mary Anne Low said.

It plans to raise $550 million with a $2.02 per share offer to institutional investors and $1.12 million from an entitlement offer.

DUET – whose assets include a Victorian electricity distributor and a West Australian gas transmission pipeline – has bid $8 a share for Energy Developments, which owns 900MW of remote and clean energy electricity generation assets globally. The bankers reported very strong demand from both existing and new shareholders, including global yield funds, requiring a significant scale back in allocations.

He couldn’t rule out a higher offer emerging but approaches made to EDL in recent years are understood to have already been fully canvassed.