Sinopec’s China Gas Pursuit Gets Stranger 中石化并购中国燃气案越来越奇怪

By newsdoug on July 9, 2012

Sinopec: new bid coming for China Gas? When the history books are written, the ongoing pursuit of privately owned natural gas distributor China Gas (HKEx: 384) by state-owned oil giant Sinopec (HKEx: 386; Shanghai: 600028; NYSE: SNP) could well be remembered as one of the strangest cases of M&A in recent memory, marked by a series of cryptic moves by Sinopec including its latest public announcement in the case.

To recap quickly, Sinopec and ENN Energy Holdings (HKEx: 2688) made an unsolicited offer for China Gas last December, offering a nice premium to buy the company. It quickly became clear that Sinopec and ENN made little or no effort to negotiate a friendly takeover with China Gas before making their $2.2 billion offer, which China Gas quickly rejected as too low.

Following that rejection, several other companies, including South Korea’s SK Holdings (Seoul: 003600) started buying big blocks of China Gas shares in anticipation of a higher offer from Sinopec that has yet to come. In one other twist, ENN’s chairman said in March that there would be no new offer for China Gas, only to have Sinopec say the next day that the chairman’s words were only his personal view and did not reflect any official position. (previous post)

Now in the latest twist, ENN shareholders have gone ahead and approved the acquisition at a meeting last week, according to a new company statement. (company announcement). Furthermore, the same statement says that ENN and Sinopec have extended the expiry date for their offer by a month to August 6 after China’s anti-monopoly regulator said it needed more time to review the case.

Perhaps I’ve missed a key development, but in my history as a reporter I don’t think I’ve ever seen a regulator review an M&A case where the 2 sides have yet to reach an agreement and there are no signs of any new breakthrough. Furthermore, ENN’s decision to put the original agreement to a shareholder vote seems like a huge waste of time, since China Gas has already rejected the offer.

My only explanation for this bizarre behavior is that Sinopec and ENN are preparing to raise their bid — something everyone has predicted all along even though it’s now been more than half a year since the original offer, an eternity in M&A terms. Even if they do submit a new offer and China Gas accepts, ENN would still have to put the new offer to another vote since it would presumably be higher than the original offer that ENN shareholders approved last week.

The strange elements in this story are too numerous to try to explain them all, and frankly speaking I’m not even sure I can think of rational reasons for some of the actions, especially the ENN shareholder vote. But regardless of the logic, we should probably be prepared to see Sinopec and ENN make a revised, higher offer for China Gas within the next month, perhaps bringing this interesting case of hostile M&A one step closer to resolution.

Bottom line: The latest strange developments in Sinopec’s unsolicited pursuit of China Gas indicate a revised, higher bid could be coming in the next month.

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