By Fayen Wong and Tom Bergin
PERTH/LONDON (Reuters) - UK gas producer BG Group Plc has made a $12 billion bid approach to Origin Energy Ltd, seeking to bolster its position in the fast-growing Asia-Pacific gas market by securing the Australian utility's gas reserves.
The companies said BG (BG), valued at around $85 billion, had approached Origin (ORG) with a proposal of A$14.70 per share in cash, a 40 percent premium to Origin's close of A$10.47 on Tuesday.
Analysts said the purchase of Australia's second-largest power retailer would help fill a hole in BG's liquefied natural gas (LNG) business.
"Strategically, such a purchase looks sound, based on BG's aspirations to have regional supply of LNG to Asia-Pacific markets," said David Thomas, oil analyst at Citigroup.
BG also reported a forecast-beating 78 percent rise in first-quarter profit to 767 million pounds ($1.52 billion) on Wednesday, helped by a tripling in profit trading LNG in Asia.
However, the company's shares traded down 3.75 percent at 1,259 pence at 7:25 a.m. EDT, on fears it was offering too much for Origin.
"It's a pretty high price and premium," said Sydney-based Jason Mabee, a utilities analyst at ABN AMRO.
But analysts at Merrill Lynch said in a research note that based on Origin's price earnings ratio, the proposed price would be cashflow neutral, while Citigroup estimated minimal earnings dilution in the near term.
Colin Smith, analyst at Dresdner Kleinwort, said the market would also need to be convinced about the logic of BG, Europe's fourth-largest non-government-controlled oil and gas company by market value, buying Origin's electricity assets.
Peter Chilton, an analyst with Constellation Capital Management, said BG could sell off Origin's power generation and retail business to help fund the deal.
But sources familiar with the matter said BG, which was spun out of former UK gas monopoly British Gas in 1997, while the customer-facing business was floated as Centrica (CNA), might keep Origin's core power retail operations.
BG Chief Executive Frank Chapman declined to comment on post-merger plans for Origin but a spokeswoman noted that BG already had gas retail operations in Latin America and India.
STRATEGIC FIT
BG is one of the largest LNG shippers in the world and was the biggest importer of LNG into the United States last year, a spokeswoman said. But Australia, a growing natural gas exporter to Asian markets, was seen as a weak spot.
This has prompted BG, which traditionally prefers to add reserves through exploration rather than takeovers, to dig deep.
In February, BG said it would pay A$664 million for a 10 percent stake in coal seam gas producer Queensland Gas Co. (QGC) (QGC) and direct interests in QGC's assets.
BG and QGC plan to build an A$8 billion plant near the Queensland port of Gladstone that will freeze the coal bed methane, which is identical to traditional natural gas, to LNG for export.
Origin would be BG's biggest acquisition by far, but the utility is the largest holder of coal seam gas resources in Queensland. Analysts said these could feed a second plant at Gladstone.
Some analysts said Origin may use its proximity to other proposed LNG projects in Gladstone to fight for a higher price.
Local rival Santos Ltd (STO), which also plans an LNG plant at Gladstone, could be interested in bidding, but with a market capitalization of just $9 billion, analysts said it was unlikely to try and battle BG.
"I would have thought it'd be hard to get competing interest. It's not as if it's a low offer putting it in play. This seems like a fairly full offer on face value," said Rohan Walsh, an investment manager at Karara Capital.
Shares in Origin traded 33 percent higher at A$13.95, after earlier hitting an all-time high of A$14.60, indicating that investors were not expecting a better offer to emerge.
In February 2007, Origin rejected a merger proposal from rival AGL Energy Ltd (AGK). Origin has a 23 percent market share in the gas and electricity business in eastern Australia, closely trailing AGL's 26 percent.
Origin also owns 51 percent of Contact Energy Ltd (CEN), New Zealand's largest energy company, and one dealer said investors feared BG would be forced to make a bid for the whole company if it were to buy Origin.
CEO Frank Chapman declined to comment on any Contact bid.
BG has a few gas-fired power stations around the world but these are used to help arbitrage gas markets or to exploit reserves that are difficult to export because of their location.
Origin advised shareholders to take no action pending further announcements from the company.
Origin said in a separate statement that its third-quarter production rose 17 percent to 23.8 petajoules equivalent, thanks to increased coal seam gas production and the start-up of the Otway Gas project offshore Victoria state.
Goldman Sachs and Gresham Partners are advising BG. Macquarie is adviser for Origin.
(Additional reporting by Sonali Paul and Sharon Klyne, Editing by Ian Geoghegan/Will Waterman)
($1=A$1.07)
