Pacific Energy’s board gives thumbs up to QIC’s $422 million takeover bid

Pacific Energy Ryder Capital ASX PEA RYD acquisition
Pacific Energy’s board has unanimously recommended QIC’s proposal to acquire the company for $0.975 per share.

Power station operator Pacific Energy (ASX: PEA) has agreed to be acquired by a subsidiary of QIC Private Capital in a $422 million deal.

The company today told the market it has entered into a scheme implementation deed with QIC subsidiary QGIF Swan Bidco to be acquired by way of scheme of arrangement.

In addition, Pacific said its board has unanimously recommended the scheme, with each director confirming their intention to vote in favour of the deal in the absence of a superior proposal.

Under the agreement, Pacific shareholders will receive $0.975 per share in cash, with $0.96 per share to be paid by QIC and the additional $0.015 per share to be paid as a fully-franked dividend by Pacific.

The deal represents a 35.4% premium to Pacific’s last closing price on Monday of $0.72 and a 50.1% premium to the company’s three-month volume weighted average price of $0.65, valuing Pacific equity at $422 million with an implied enterprise value of $487 million.

According to Pacific, the deal isn’t expected to change the leadership or operations of the company or its wholly-owned subsidiaries including Kalgoorlie Power Systems (KPS) or Contract Power.

Pacific chairman Cliff Lawrenson described the proposal as an “opportunity for shareholders to realise compelling and certain value for Pacific shares”.

“The proposal delivers a significant premium for shareholders and recognises the position Pacific has built as the leading Build-Own-Operate power supplier to the mining industry and remote townships in Western Australia, as well as the emerging opportunities from our growing east coast presence through Pacific Energy Victorian Hydro and NovaPower,” he said.

State-owned QIC, or the ‘Queensland Investment Corporation’, is one of the biggest institutional investment managers in Australia.

Commenting on the acquisition, QIC head of global infrastructure Ross Israel said the company was attracted to the quality of Pacific’s business and its position in the decentralised electricity generation sub-sector.

“Pacific Energy diversifies the wider QIC Global Infrastructure Fund portfolio and has a risk-return profile consistent with our clients’ requirements,” he said.

Today’s announcement follows media reports earlier this week that both QIC and Canadian pension fund investor OPTrust had submitted bids for the company.

It also comes five days after Pacific announced it had been awarded a new power station contract for the Jaguar copper-zinc mine in Western Australia.

Power station deals

Last week, Pacific revealed it has been awarded a contract to purchase, optimise and operate the existing 12.9MW gas-fuelled power station at Round Oak Minerals’ Jaguar copper-zinc mine in WA.

Under the deal, Pacific’s subsidiary KPS will acquire the power station for $2.5 million and has agreed to complete optimisation and enhancement work to improve fuel efficiency (to an agreed target range) within five months.

The contract is expected to begin following settlement in August and will run for an initial term of four years, with the possibility of extension.

As a result of this new deal, Pacific’s contracted capacity now stands at 367MW.

Pacific also announced several expansions to existing KPS contracts in May, including a variation to expand the 44MW gas-fired power station at the AngloGold Ashanti-operated Tropicana gold mine by 4MW, plus an option for an additional 2MW expansion.

Initial expansion works at Tropicana are expected to be completed by December. KPS’ contract at the mine goes until 2028 with extension options for up to a further five years.

Pacific also secured an additional 2MW in capacity expansions with other unnamed customers.

Ryder Capital’s stake

In a separate announcement, investment company Ryder Capital (ASX: RYD) advised its shareholders that it holds approximately 6.42 million ordinary shares in Pacific.

Pacific’s shares surged 36.11% on the news to $0.98 by afternoon trade. Ryder shares were also up 11.11% to $1.45.

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