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High Energy

The energy sector is in focus after a third bidder for AWE threw their hat into the ring. A rising oil price and the potential for an all-out bidding war have investors wondering how high the AWE share price can go – and who’s next?

This is a vast improvement from the low point for the sector a year ago. The oil price that plumbed prices below US $30 a barrel is now trading at more than double that price. AWE shareholders are doing even better. After touching lows at 31 cents last year it traded at $1 after the latest bid from Mitsui.

Mitsui are long standing players in Australian energy markets with a presence established in the 1950’s. While the all-cash bid is non-binding until there are 50.1% acceptances, it is a far cleaner bid than many of the highly conditional takeover proposals of recent years. Given the previous best bid, from locally listed Mineral Resources (MRE), was both lower and composed of scrip and cash, shareholders may consider Mitsui’s bid superior.

The trading up to $1 after Mitsui’s 95 cents per share bid indicates there are some willing to risk their funds on a higher bid. This is not a forlorn hope. All three bidders are trade groups with potential synergy benefits, not private equity groups whose only concern is buying cheaply. Given the third player is state related China Energy there is no concern about the depth of pockets.

However it plays out there is no doubting the benefit to AWE shareholders of a competitive bidding environment (above). The energy sector is ripe for further moves, particularly on small players with higher quality assets. Investors looking to M&A activity as a portfolio kicker in 2018 could also consider mining services and media as sectors with potential for consolidation.

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