Envestra has rejected a $2 billion takeover offer from fellow natural gas pipeline owner APA Group, saying it undervalues the company.
APA hopes to make itself Australia's largest energy infrastructure group by combining its 13,000 kilometres of natural gas pipelines around Australia with Envestra's 22,500 kilometres of gas distribution networks.
But Envestra says APA's offer significantly undervalues its business and is not in the best interests of shareholders.
Under APA's bid, Envestra shareholders would receive 0.1678 new APA stapled shares for every Envestra share they own, and would be entitled to any final Envestra dividend of up to three cents a share for fiscal 2013.
When the bid was first tabled on July 16, the price represented a premium of less than one per cent to Envestra's share price.
But since that time Envestra's shares have risen and APA's have fallen, damaging the benefits to Envestra shareholders.
APA is Envestra's biggest shareholder, with a 33.4 per cent stake, and currently operates Envestra's gas distribution networks and pipelines.
"Envestra's shareholders would not be better off financially were the proposal to proceed, particularly taking into account the different risk profiles of APA and Envestra," Envestra's chairman John Allpass said in a statement on Monday.
APA said it was surprised by Envestra's rejection, which came without any discussion between the two companies.
It said it would fully consider Envestra's position before making further comment.
Some analysts have suggested APA will need to add cash to what is currently an all scrip bid offering only shares.
APA shares closed steady at $6.05, while Envestra shares dropped half a cent to $1.115.
