Australian Pipeline Leader APA Group Faces Hurdles in Acquiring Envestra

Researched by Industrial Info Resources Australia (Perth, Australia)--APA Group Limited (ASX:APA) (Sydney, Australia), Australia's largest transmission pipeline company, is seeking to acquire Envestra Limited (ASX:ENV) (Adelaide, Australia) in a deal that was first announced last month. However, the deal appears to have fallen through after Envestra's board of directors rejected the takeover offer.

APA Group is the largest owner and operator of long-distance transmission pipelines in Australia. The pipelines it owns include the Pilbara Energy Pipeline, the Goldfields Gas Pipeline and Midwest Pipeline in Western Australia; the Amadeus Gas Pipeline in the Northern Territory; the Carpentaria Gas Pipeline, the North Queensland Gas Pipeline, the South West Queensland Pipeline and Roma Brisbane Gas Pipeline in Queensland; the Moomba Sydney Gas Pipeline, the Central West Pipeline and the Central Ranges Pipeline in New South Wales; and the SEAGas Pipeline in western Victoria.

Envestra is one of Australia's largest natural gas distribution companies, owning regulated natural gas distribution networks in South Australia, Victoria, Queensland and New South Wales that serve approximately 1.2 million gas consumers. The company owns 14,000 miles (22,500 kilometers) of gas distribution pipelines.

APA Group is already the largest single shareholder of Envestra, owning 33% of the company, and it has a long-term contract in place to maintain and operate Envestra's gas distribution network. The existing agreement also sees APA taking responsibility for planning, designing and constructing network extensions.

Despite currently looking as though it will not go ahead, the proposed merger has caught the attention of the Australian competition watchdog, the Australian Competition & Consumer Commission (ACCC). The recent acquisition of fellow pipeline operator Hastings Diversified by APA was only allowed by the ACCC under an agreement that they sell the Moomba Adelaide Pipeline System (MAPS). At the time, the ACCC was concerned that APA would gain too much control over Australia's natural gas pipeline infrastructure.

Despite the wariness in some parts of the industry, APA was optimistic that the ACCC would not oppose the proposed deal with Envestra, as the merger would involve vertical integration--APA would be the hauler of the wholesale gas, as well as the retailer to the consumer.

''There are no competition issues that would cause concern for the ACCC with this transaction,'' APA Group managing director Mick McCormack said when announcing the proposal in July.

APA has announced that it is considering another offer for Envestra.

Elsewhere, APA is continuing its rampant growth with pipeline extensions planned for the Carpentaria Gas Pipeline in Queensland, potential involvement in the Gove Pipeline in the Northern Territory, discussions with Fortescue Metals Group Limited (ASX:FMG) (East Perth, Australia) regarding the proposed Pilbara Gas Pipeline, and work on its existing pipeline network to increase compression and capacity thoughout the country.

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