Santos has fight on its hands with Qld Gas takeover -

FRESH from losing a bid to increase its foothold in the Cooper Basin, Santos has made a $606 million offer for coal seam methane producer Queensland Gas.
Santos, which has yet to rejoin the troubled Papua New Guinea pipeline project, said the takeover would enhance its core gas business in eastern Australia.
But the Adelaide company potentially faces another hostile battle after it recently lost out on its $474 million offer for Delhi Petroleum to Beach Petroleum.
The Queensland Gas board urged shareholders to take no action on the unsolicited cash bid.
"I don't believe there will be many shareholders who will be willing to sell out [at the $1.26 a share offer price]," Queensland Gas managing director Richard Cottee said.
Queensland Gas shares traded at $1.02 before Santos picked up 1.9 million shares on-market on Wednesday. Santos now holds a 3.9 per cent stake in the Queensland gas producer and is seeking 50.1 per cent of shares through its offer.
Queensland Gas shares rocketed to close up 25.5c, or 23 per cent, at $1.37 yesterday, indicating many investors were expecting a higher offer.
Analysts said the most likely counter-bidders would be Origin Energy and AGL. Origin has a joint venture development with Queensland Gas, meaning it might be able to extract more cost savings from a tie-up than Santos.
Santos's move also ignited the share prices of the few other independent companies left standing in the rapidly consolidating coal-seam gas sector, including Arrow Energy and Sydney Gas.
Arrow Energy shares closed 10c, or 15 per cent, higher at 76c, while Sydney Gas shares closed 2.5c, or 9 per cent, higher at 31c.
Earlier this year, Queensland Gas made a failed tilt at Sydney Gas and Arrow merged with CH4. Sydney Gas and Arrow both have large joint ventures with AGL.
Mr Cottee said his company had hired takeover defence advisers about six months ago due to the rapid rise in merger activity in the sector.
"We've always thought we had enormous intrinsic value that has not been realised by the stockmarket," he said.
In a report last month, Wilson HTM analyst Andrew Pedler said Arrow was trading at a greater discount to his valuation than Queensland Gas.
Arrow chief executive Nick Davies said yesterday he was pleased Santos's tilt at Queensland Gas had put a "fair price" on assets in the sector.
"From our point of view, we are very encouraged by this offer from Santos," he said.
Although Origin would not be drawn into speculation it could lodge a rival offer, spokesman Wayne Gregory noted the company had "great faith in the future of coal seam gas".
Last year, Santos bought US-listed coal seam methane producer Tipperary for $600 million to pick up assets in Queensland. And earlier this year, AGL grabbed half of the Moranbah gas project from BHP Billiton for $93 million.
Santos has been negotiating to take a 9 per cent stake in the PNG gas pipeline project, but the momentum for the giant development has recently stalled.
"This potential acquisition [of Queensland Gas] is independent of any other decision by Santos, particularly with regard to the PNG pipeline," Santos spokeswoman Kathryn Mitchell said. Santos shares closed 15c higher at $10.70.