Bryan Frith in The Australian today had a pretty good take on...

Bryan Frith in The Australian today had a pretty good take on developments -
Sydney Gas calls QGC's bluff over bidder statement
SGL tells bidder to reveal the defeating condition as QGC drags its feet, writes Bryan Frith.

READING between the lines, Queensland Gas Co is headed for a declaration of unacceptable circumstances in relation to its takeover bid for Sydney Gas (SGL).

SGL went to the Takeovers Panel almost two weeks ago contending there were a number of deficiencies in QGC's bidder's statement. QGC issued a supplementary statement which addressed some but not all of SGL's concerns.

QGC yesterday issued a somewhat cryptic statement to the ASX which said that "as a result of input" from the panel the company had formed the view there could be a "significant" delay to the closing date of its offer. At present the offer is scheduled to close on March 29.

QGC added that it was concerned that the market in both QGC and SGL shares was trading on a bias that didn't have regard to the "practical consequence" of any such delay. It also believed it was now quite likely that a defeating condition of its bid could be triggered.

Although it was not identified, that condition is likely to be the requirement that SGL hold a minimum cash balance during the bid period of $15 million. SGL is required to redeem $10 million of convertible notes on April 1 and a further $20 million on June 1, and is likely to breach QGC's minimum cash condition after the April 1 redemption.

SGL complained about information supporting forward-looking statements (forecasts and their assumptions) made by QGC, detail in relation to QGC debt facilities, contracts under negotiation and the Chinchilla power station project in Queensland.

It also contended that QGC had failed to disclose that its offer to refinance the $30 million of convertible notes may be conditional on SGL shareholder approval and therefore does not provide the claimed certainty of repayment.

QGC took the risk and posted its bidder's statement, along with the supplementary, after SGL had applied to the panel.

Yesterday's foreshadowing of a significant delay suggests the panel has formed the view that the information in the bid document is not adequate. It also suggests the panel considers that reissue of the bid document, rather than the issue of a further supplementary statement, is the appropriate remedy.

If that's correct, then the panel is probably of a mind to make a declaration of unacceptable circumstances, together with orders, although it's possible QGC could head that off by giving undertakings that would fulfil the panel's requirements.

QGC is offering one of its shares for each two SGL shares. At Tuesday's close of 88c for QGC, its bid valued SGL shares at 44c.

Yesterday's announcement by QGC understandably created uncertainty, which resulted in SGL shares shedding 6c, or almost 15 per cent, to 35c, prompting SGL to obtain a trading halt as it believed that trading was not taking place on a fully informed basis in the light of QGC's announcement. SGL may suspect that QGC was hoping to trigger a sharp fall in the SGL share price. It's thought that SGL wanted the panel to make an announcement but it declined. So SGL released a statement calling on QGC to identify the defeating condition it referred to and the circumstances under which it believed it was likely to be triggered, and the practical consequences of the delay that QGC mentioned. SGL also wants QGC to clarify whether or not it intends to withdraw its bid.

For its part QGC also obtained a trading halt, after its share price fell to 81.5c.