British gas producer BG Group went hostile on Tuesday with its A$13.8 billion (US$13.1 billion) bid for Australia's Origin Energy, launching the offer direct to Origin shareholders.
BG's all-cash bid, which values Origin at A$15.50 a share, was rejected by Origin's board rejected last month. It said its coal seam gas reserves alone were worth over $15 billion after doubling its resource estimate to 10,000 petajoules.
BG said the offer, which represents a 48 percent premium to Origin's closing price of A$10.47 on April 29 before the bid was announced, reflects the value of Origin's integrated energy business and the long-term prospects of its coal seam gas reserves.
"It's no surprise BG would launch a hostile bid. It's a chance for them to put out their case as well as an explanation why they think Origin's rejection was essentially flawed," said Ken West, analyst at Perennial Growth Management.
Buying Origin would also help BG fill a hole in its liquefied natural gas (LNG) business.
Shares in Origin, which have surged 84 percent this year, rose almost 6 percent to a record A$16.45, indicating investors expected a higher offer.
Origin was not immediately available for comment.
BG said it believed Origin shareholders have limited visibility of the risks inherent in Origin's reserves position and LNG joint venture alternatives.
It said Origin does not have sufficient coal seam gas reserves to support an LNG venture as there are third-party contractual rights over a large number of Origin's tenements.
Origin's domestic market requirements from coal seam gas also exceed the firm's currently available proven reserves.
"Furthermore, there are currently no operating coal seam gas LNG plants anywhere in the world; competing projects in Australia are more advanced and many billions of dollars of capital investment would be required," BG Group Chief Executive Frank Chapman said in a statement.
Under Origin's proposed coal seam joint venture, not only would shareholders have to bear project execution and commercial risks, the project would also be unlikely to generate any revenues until 2015 or 2016 at the earliest, Chapman said.
Origin is Australia's largest coal seam gas producer. After rejecting BG's bid, it said it would focus on how to get the best value from its reserves, possibly through partnerships to supply an LNG plant or even through a break-up of the company, which also has power generation and retail businesses.
BG said Origin's board had initially agreed to the A$15.50 a share offer, which was improved from an original A$14.70 per share bid. But Origin later withdrew support for BG's bid, citing a $2.5 billion deal between Malaysian state-owned oil firm Petronas and Australian energy firm Santos, under which Santos' coal seam gas reserves were valued at A$1.65 per gigajoule.
Origin Chief Executive Grant King has said that using the Petronas-Santos deal as a benchmark, Origin's coal seam gas reserves would be worth more than A$16 billion.