Just when APA Group (ASX: APA), the gas distribution and transmission pipeline company, was about to have its takeover offer for Envestra Limited (ASX: ENV) voted on by the target company's investors, one of Envestra's largest shareholders threw its hat into the ring with a $2.37 billion rival bid.
There had been suspicions that another offer might come due to APA's $2.2 billion offer being seen by some shareholders as not a big premium, most notably Cheung Kong, the Chinese conglomerate that made the rival bid.
APA Group's share price movement seems to show that the market may like it if its takeover doesn't go through. Its share price went up on 8 May when Envestra announced receiving the other takeover offer.
What's good about APA Group and could it be a good investment?
Major gas pipeline operator and manager
The $5.7 billion company has interests in energy infrastructure which includes 14,000 km of gas pipelines and gas storage facilities. It delivers about half of the gas that is used in Australia annually, making it the largest transporter of natural gas.
Its pipeline network is extensive, stretching from Western Australia to Queensland. It also manages the gas distribution network of Envestra and is its largest shareholder.
Business performance
Its underlying net profit has risen each year since 2004. In the first half of FY2014, underlying net profit was up again, this time a 25% gain to $121 million.
Pipeline network expansion and business potential
The company wants to link up its network to the existing pipeline system that runs through Northern Territory to Darwin. If successful, it will be able to transport gas to all major regions and cities in Australia.
This may be why APA Group wants more control of Envestra before the link-up. It could move gas to the LNG processing plants in Queensland or direct it to the new Darwin LNG plant that is being developed now.
APA Group's pipeline business is similar to a rail line company because pipelines don't regularly have a lot of competition because of high initial investment and approvals barriers.
Apart from periodic maintenance, the company doesn't have the recurring high capex like manufacturers or miners to keep the business going. This helps retain higher profit margins and decent returns on equity.
