Analysts seem to be suggesting that a new bid which Arrow will...

Analysts seem to be suggesting that a new bid which Arrow will agree on will be in the vicinity of $5.45/share. Not sure if this also includes a share in the International business. Still think this would be $1.00 short of a fair-value bid ($6.45 + 1 share)

Revised bid for Arrow Energy in sight

Sarah-Jane Tasker

From: The Australian March 20, 2010 12:00AM

ARROW Energy is expected to support an increased takeover bid by suitors Royal Dutch Shell and PetroChina, with the parties yesterday finalising the terms of a new deal.
Speculation of a friendly deal gained momentum yesterday after Arrow requested a trading halt on its shares pending an announcement on the $3.3 billion bid. Arrow has not yet officially responded to the $4.45-a-share cash offer from Shell and PetroChina for its Australian assets, fuelling speculation it is working on a revised deal with the parties.

Since the offer was lodged on March 8, analysts have suggested that Shell and PetroChina may need to raise their bid based on prices paid in previous coal-seam gas transactions, including BG Group's 2008 acquisition of Queensland Gas Co. Some analysts tipped a price of up to $5 a share.

Nik Burns, an energy analyst at RBS, said he was "very confident" of an improved bid and raised his target price on Arrow's shares to $5.45 from $5.

Mr Burns said a 10 per cent increase, to $4.90, would be the minimum he expected, but he said a higher offer was possible.

"Arrow has been in active discussions with Shell and PetroChina over the past few days, probably thrashing out a revised offer," he said. "With too much to lose on both sides if this deal falls over, we are very confident of an improved bid."

If the bid succeeds, Shell and PetroChina would set up a 50-50 joint venture to build a two-production-train, 7.4 million tonnes a year liquefied natural gas plant on Curtis Island, Queensland. This would involve an equalisation payment from PetroChina to account for Shell's existing Australian assets, which include the planned Curtis Island project and a 30 per cent stake it bought in Arrow's assets last year.

Mr Burns said that with no other bidder expected, maximising the sale price should be Arrow's primary objective. "The ongoing discussions between both sides are a signal to us that common ground is being sought," he said. "We sense a revised, improved bid will be announced any day now and expect it to be supported by the Arrow board."

The deal would give Shell reserves to feed the Curtis Island LNG project. Shell's plant is one of more than a dozen planned LNG ventures in Australia.

Mr Burns said there was likely to be a strong preference for a friendly deal as going hostile would raise a number of issues for Shell and PetroChina.

"With the Australian government flagging its concerns over sovereign-controlled entities (such as PetroChina) owning significant stakes in key Australian resource companies, both Shell and PetroChina would be keen to go into this deal with the full support of the target company."