UK's BG makes hostile $13.1 billion Origin bid

BG is taking its A$13.8 billion all-cash bid, valuing Origin at A$15.50 a share, direct to Origin shareholders after Origin's board rejected it last month.

Origin claimed then that its coal seam gas reserves alone were worth over $15 billion after it doubled its resource estimate to 10,000 petajoules.

Shares in Origin, which have surged over 85 percent this year, rose 6.2 percent to a record A$16.48 before closing up 5.8 percent at A$16.42, indicating investors expect a higher offer.

If successful, the deal would be the second-largest foreign takeover of an Australian company after Cemex, North America's largest cement producer, bought Rinker Group Ltd last year for $14.2 billion.

BG said the offer, which represents a 48 percent premium to Origin's close 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 very generous offer and I think some shareholders may be swayed and may decide to just take the money and run," said Gavin Wendt, head of research at Fat Prophets Funds Management.

"But there's also a chance BG's hostile move may drag out other parties interested in Origin's coal seam gas assets."

Origin advised its shareholders to take no action.

Campbell McComb, a fund manager at Armytage Private which holds Origin's shares, said he believed BG's offer was a good deal as there would be significantly higher risks for Origin to bring its coal seam gas assets online.

BG, U.K.'s third-largest oil and natural gas producer, wants Origin's vast gas resources in Australia to feed a proposed liquefied natural gas (LNG) project on the east coast, which would help BG fill a hole in its LNG business in the region.

INHERENT RISKS

BG said it believed 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.

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, BG Group Chief Executive Frank Chapman told reporters in a teleconference.

"We have gone away and reflected very carefully and we have decided to put this directly to shareholders because we believe this is a very strong and compelling proposition and shareholders should be able to decide for themselves," Chapman said.

Chapman said BG executives have had meetings with some Origin shareholders and would meet more in the coming days.

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.

In rejecting BG's bid, Origin has said that using the Petronas-Santos deal as a benchmark, its coal seam gas reserves alone would be worth more than A$16 billion.

BG declined to specify how much its bid values Origin's coal seam gas reserves, but said the Santos-Petronas deal would not provide an appropriate valuation metric as Santos' LNG project was well advanced.

($1=1.05 Australian Dollar)

(Editing by Ian Geoghegan)