The Ethane Pipeline Income Fund (ASX: EPX) share price has jumped more than 30% in trading today to $1.912, after the company received a takeover bid from APA Group (ASX: APA).
Ethane securityholders (it's a trust) have been offered $1.88 in cash, plus 3.25 cents per security for the March 2016 quarter dividend distribution – for a total of $1.915.
APA Group currently owns just over 6% of Ethane's securities, and Ethane's board has recommended the takeover offer, pending an independent expert's opinion that the offer is fair and reasonable.
Ethane owns just one asset, the Moomba to Sydney ethane pipeline that supplies ethane (gas) from the Cooper Basin production facility in South Australia to the ethylene plant at Botany in Sydney, owned by the company's sole customer Qenos Limited. APA manages and operates the Ethane pipeline, as well as providing operations and maintenance services to Ethane.
APA Group by comparison to Ethane is an octopus, with an estimated $19 billion worth of energy assets, including gas transmission pipelines in every state and territory on mainland Australia – delivering around half of the nation's gas usage. The company also has an ownership interest in the Allgas gas distribution network as well as a long-term agreement to operate the Australian Gas Networks (formerly Envestra Limited). Together the two have approximately 28,600 kilometres of gas mains and pipelines, with 1.3 million gas consumer connections.
APA also owns a wind farm, gas storage facilities as well as other equity interests.
APA has been mopping up Australia's gas pipeline owners for a few years now. It took over Envestra in 2013, acquired the Hastings Diversified Utilities Fund in 2011, and GasNet in 2006, amongst a number of others.
Gas pipeline operators like APA are virtually toll collectors, charging a fee (some regulated by government) for the transmission of gas or liquids through its pipelines. Like a toll road, once the pipeline has been built, there's usually very little capital expenditure needed each year apart from some maintenance.
Foolish takeaway
A higher bid is unlikely to materialise, and given Ethane's board are standing behind the APA bid, it's highly likely to proceed. The upside for Ethane security holders is a nice price, but the downside is they will miss the 6.8% distribution/dividend.
