Strategy
Events Trades
Australia

Event Trade: Infigen Energy (IFN:ASX)

22 Jul 2020
By
Infigen Energy develops, owns, and operates renewable energy generation assets. The Company engages in wind farm development project that generate electricity from wind turbine generators. Infigen Energy serves customers in Australia.

Current advice: Accept offer

Recommendation Update – 22 July 2020 10:00am

We recommended members sell IFN on Monday at $0.90 after UAC had announced that it would not increase its offer, and with the high likelihood that Iberdrola’s offer would now proceed we were happy to take our profit at a small premium to the Iberdrola offer.

We are a little miffed this morning as Iberdrola has announced that it will increase its offer to $0.92 if further acceptances of 13% are received by the end of this month (roughly a week from now). This is an incredibly unusual move and unfortunately has cost us $0.02 per share, and we can’t figure out the motive for the decision. Iberdrola was a lock to get to 50.1% in time which would increase the odds of UAC selling its stake, and this extra payment is only on effectively reaching 40% ownership. It seems that progressing the deal as fast as possible is all that matters to Iberdrola and arguably this will accelerate the deal by 1-2 months but at a 3% cost!

Anyway, members should have sold on Monday but for those of you too slow to sell you can now accept the offer instead and receive an extra $0.02 per share on where it was on Monday. To accept, you can advise your CHESS-sponsored broker to do so on your behalf.

To view the rest of our current Event Trades, please click here.

Recommendation Update – 20 July 2020 1:30pm

Original bidder UAC announced on Friday afternoon that it would not match or exceed the offer from Iberdrola. UAC also stated that its current intention is to not accept the Iberdrola offer so it looks like IFN is going to remain listed.

The end of the auction is a shame but the end result will be a nice low risk profit that yielded two better offers from our original entry price. Because UAC is keeping its shares it looks like the share price is holding around 90c which we now think is a good price to sell. We therefore recommend all members sell IFN at around the current price of 90c. 

 

Recommendation Update – 16 July 2020 10:00 am

Lead bidder Iberdrola got on the front foot this morning by announcing that it was declaring its bid unconditional. While shareholders have been waiting out a response from UAC, acceptances were always going to flow in too slowly for Iberdrola to reach the 50.1% it needed, so this is a solid strategic move which will either be the death knell of UAC’s aspirations to buy IFN or alternatively be the catalyst for UAC to raise its bid even sooner than it may have otherwise done.

The good news is that with the $0.89 bid now unconditional, there is effectively no risk of our proceeds falling below that level. This means that a decision to hold the stock above that level on the hope of a new bid – the stock is at $0.92 this morning – is an easier call knowing we are looking at a worst-case downside from this level of roughly 3%.

From here we hope to see UAC re-emerge with a new offer if we are to see gains above $0.89. There are rumours that the UAC team in Australia has slowed down its work, but ultimately any decision to raise the offer will come from the board in the Philippines so there remains a chance we see more action. IFN remains a hold at these levels or a buy up to $0.91 for those members yet to get set.

To view the rest of our current Event Trades, please click here.

Recommendation Update – 29 June 2020 10:00 am

The bidding war is officially on as original suitor UAC announced this morning that it was increasing its offer to $0.86 – the same as that offered by Iberdrola – and that it was declaring its bid unconditional. Despite only being the same price as that offered by Iberdrola, the offer is unconditional and thus certain which makes it clearly superior to the first proposal offered by Iberdrola.

The fact that UAC’s bid is now unconditional means there is effectively no chance of downside below $0.86 which is a great outcome and makes the decision making from here much easier. In what is an incredibly fast-paced investment, Iberdrola has this morning already increased its takeover bid to $0.89 which now leaves the ball back in UAC’s court.

We had previously increased our buy recommendation from the original $0.80 to $0.87, but with Iberdrola now at $0.89 and an unconditional offer at $0.86 we are happy to increase our risk a little (for those yet to get set), and will increase our buy recommendation to $0.91 which would give investors only 2.2% worst-case downside if UAC walks away.

We will update members further as more action unfolds and await UAC’s response.

Recommendation Update – 17 June 2020 9:45 am

We recommended IFN to members on 3 June after it received a hostile takeover bid by a Philippines-based company called UAC Energy at a price of 80c. As the bid was opportunistically timed and because UAC wasn’t able to buy as much stock as it tried to before it announced its bid, we were of the view that shareholders and hopefully the board would view the offer as too low and would either search for a new bid or negotiate for a higher offer from UAC. Members were able to get set between 79c and 80c on 3 June, but unfortunately the opportunity to buy the stock at that price was only available on that day.

This morning we got the ideal outcome as IFN announced a new recommended takeover offer of 86c from Spanish energy giant Iberdrola. Iberdrola is the world’s largest wind energy producer and a logical buyer for IFN, and is currently developing a wind and energy project in Australia.

It seems IFN has been talking to Iberdrola for some time which explains how IFN was able to rustle up a binding deal so quickly, and we may now find ourselves in the middle of a bidding war if UAC is prepared to pay more. As UAC already has a large presence in Australia it’s likely there are some extra synergies it could extract above what Iberdrola would be able to, so hopefully UAC can make the numbers work on a higher bid. Additionally, Iberdrola’s bid is only conditional on 50.1% acceptances which means that UAC’s stake is not large enough to block Iberdrola’s bid, so we are in a great position with a very low likelihood of Iberdrola’s bid failing in the absence of a new bid.

While members had the opportunity to buy IFN on 3 June at up to 80c, we are aware that some members were unable to get set in the stock but fortunately there is room for more action. We don’t know where IFN will open at just yet but given the size of the two parties bidding and the likelihood that 86c is our worst-case scenario we are happy for members yet to buy the stock to pay a little more to get set.

We are therefore going to recommend all members yet to buy IFN can do so at up to 87c for a low-risk, short-term investment opportunity on the hope of further takeover bids.

Original Recommendation- 3 June 2020, 10:00 am

We have seen our first big takeover bid since the coronavirus pandemic devastated stock markets in late February and March, with wind energy company IFN receiving a takeover bid this morning from UAC Energy (which is ultimately backed by Philippines-based Ayala Corp) after UAC launched a raid overnight to secure as much as 17% of IFN. Ultimately, UAC was only able to acquire 12.82% of IFN which was enough for it to be willing to bid for remaining shares at 80c per share.

The offer comes on the back of the stock trading as low as 39c in March from a year high of $0.80 (perhaps not coincidentally) and is at an attractive (at first glance) 44% premium to the one-month volume weighted average price of IFN. IFN has not traded above 80c since mid-2017 so arguably UAC’s timing isn’t as opportunistic as it appears. Still, the fact that UAC was not able to buy the 17% of IFN it wanted to overnight implies there are some large institutional shareholders unwilling to sell at that price.

The takeover bid itself is very straightforward and comes without an acceptance condition which lowers the risk for us but also means if we are to see a competing bidder it will need to be early in the piece before UAC builds its stake too much. The only condition of note is the Foreign Investment Review Board (FIRB) requirement, and energy supply has been a politically sensitive issue in recent FIRB decisions (such as the APA Group takeover). Having said that, the renewable energy sector in Australia is sorely lacking in deep pockets, and IFN itself has debt issues preventing it from spending big so a player like UAC which already has renewable energy investments in Australia should be welcomed in our view.

So, overall, we think the chance that this deal will succeed is high. Given the reluctance of institutions to sell at 80c, there is scope for UAC to raise its offer to reach the 50.1% it is likely after at a minimum, and until UAC has amassed a blocking stake this bid could stir up other bidders.

We are therefore recommending members buy IFN at up to 80c for a short-term, low-risk event strategy investment.

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