Investors have dumped shares in Australian gas pipeliner APA, wiping more than $1 billion off its market value after the Foreign Investment Review Board rejected a $13 billion takeover of the company overnight.
Late on Wednesday, FIRB knocked back Hong Kong-based utility firm CKI’s $11-a-share bid for APA, citing national security concerns.
APA shares started trading on Thursday at $8.46, more than 10 per cent below Wednesday's closing price of $9.51. Its market capitalisation dropped from $11.2 billion on Wednesday to $10.1 billion on Thursday morning. After the early losses, the stock began to regain some ground, recovering to $8.58 by mid-morning.
Treasurer Josh Frydenberg rejected CKI's bid for APA on national interest grounds, saying it would put "undue concentration of foreign ownership by a single company group in our most significant gas transmission business".
Tom Millner, a director at Contact Asset Management which operates APA top 20 shareholder BKI Investment, welcomed the decision to reject the bid although he queried Mr Frydenberg’s reasoning.
“This wasn’t about a national security concern,” Mr Millner said.
“Political and public pressure obviously played a role here, we’ve seen decisions like this historically with assets like Graincorp.”
He said the sharp market correction was to be expected and the company's value would be regained in the future.
“We’re less concerned with the value being wiped in the short term as that valuation doesn’t offset the actual value of APA,” Mr Millner said.
“We think a fair value was reached with the offer but we’re looking to the long term and believe it will reach $11 again on its own.”
Another shareholder said as the FIRB decision dragged on the likelihood the deal would be rejected grew, putting it on the radar for other potential bidders.
"It was becoming more and more likely [the deal] was going to be rejected given the political climate. So, in the end, it was not a great surprise, and I wouldn’t rule out someone else having a closer look," he said.
All eyes will now be on Australian fund manager IFM and its consortium of local investors and an as yet unidentified Canadian pension fund, which had voiced interest in making a bid for APA if the CKI bid was rejected by FIRB.
The group was unable to put forward an offer higher than CKI’s $11-a share bid but believed its potential offer could still be competitive.
The fall in APA's share price following the FIRB veto can be seen as a correction to APA's market value, which had been inflated by investors buying the stock to profit in the takeover. Prior to CKI's bid, APA was trading between $7.59 and $8.40.
While APA has not yet made a comment on the company's future plans now that the deal has fallen through, at its annual general meeting in October, APA chief executive Mick McCormack said the company will pick up on its growth plans which had halted since the bid.
"We were about three-quarters or two-thirds of the way through a $1.5 billion capex spend and there's still lots of opportunity there," Mr McCormack said.
At the time he said the company would also explore potential acquisitions in the US if the bid fell over.
"[If the bid fails] we'll jump back on the horse and giddy up," he said.