still not a bad punt, page-5

obviously the market, at least for now, agrees with this
guy -


PORTFOLIO POINT: Shells revised bid will land Arrow, leaving some over-enthusiastic investors out of the money.


Arrow Energy (AOE). Shell and PetroChina have increased their offer for Arrow but therell be some pretty disappointed investors out there who were hoping for something more attractive. The two bidders have increased the cash portion of the deal from $4.45 to $4.70 plus the share in the international assets which will be renamed Dart Energy, which I estimate are worth about 30 each but others seem to think will be worth much more. The Arrow board has given its blessing to the deal, with managing director Nick Davies saying directors are reasonably confident of gaining shareholder support.

The problem is that it looks like some shareholders got a bit carried away and bought in way too high. The shares were trading at $5.29 when Arrow called a trading halt on Friday ahead of the revised bid, which left them open to the deal falling short. Unfortunately for them it did just that, by quite some margin. The new bid represents a very slight 5.6% increase in the cash component when those who bought in at the top needed a 10% increase to break even.


nHow Arrow's share price has moved




Predictably the share price has fallen to around $5.10, but in my view this is still too high, particularly when you consider the deal still has some way to go, even if nothing else happens. Some investors are hanging in for another revised offer from Shell and PetroChina or for another bidder to enter the fray. A revised offer appears unlikely, with the Arrow board already expressing its approval. Any Arrow shareholders hoping that major shareholder Robert Millner would hold out for a higher bid will be heartbroken to read the reports that his coal company New Hope is prepared to accept the offer.

Its possible that Arrow will attract a counter offer, but its unlikely. Arrow has been looking for a buyer for some time and Shell already has substantial involvement in Arrows operations. If another player were to emerge it would set off fireworks, precisely because it would take a huge effort to unseat Shell from its position. There are easier ways to tap coal seam gas, which brings us to Santos.

There are three CSG players in Queensland and I think itll become two at some point. Santos is seen by some as predator rather than prey, but Im not so sure. Santos has a 17.8% share in Eastern Star Gas which could very easily become a prelude to a full bid. Bow Energy is another company that is often mentioned in the same breath as Arrow. There is no shortage of interested parties that could be looking at these companies very carefully. Shell is also a possibility as is BG Group. It will be interesting to see how consolidation resolves itself here.