APA GROUP — M&A Activity 2013

Jul 15, 2013

16 July 2013

ASX ANNOUNCEMENT

APA Group (ASX: APA) (also for release to APT Pipelines Limited (ASX: AQH))

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APA announces approach to Envestra Limited regarding a merger proposal

APA Group (ASX: APA), Australia’s largest natural gas infrastructure business, today announced it has approached the board of Envestra Limited (Envestra) (ASX: ENV) with a proposal under which the two businesses would be combined through an all-share merger.

The proposal remains indicative and non-binding[1] .

APA acquired a 17.2 per cent interest in Envestra in July 2007, and has supported Envestra with further equity investments over the last six years. APA currently owns 33.0 per cent of Envestra shares and is its largest shareholder.

Envestra is one of Australia’s largest natural gas distribution companies, owning regulated natural gas distribution networks in South Australia, Victoria, Queensland and New South Wales, serving approximately 1.2 million gas consumers.

APA already manages and operates Envestra’s gas distribution networks and pipelines under a long term operating and management agreement. Under the agreement, APA also has responsibility for planning, designing and constructing network extensions, and promoting the use of gas within the networks.

The merger proposal

Under the proposal, Envestra shareholders would receive 0.1678 new APA stapled securities for each Envestra share they own, and would be entitled to any final Envestra dividend for the 2013 financial year of up to 3.0 cents per share.

This implies a value of $1.10[2] for each Envestra share, and represents a premium of 10.6 per cent to the one month Volume Weighted Average Price (VWAP) of $0.995 for Envestra shares. The proposal values the equity of Envestra at $1.98 billion[3] .

Eligible Envestra shareholders will also benefit from a significant proportion of capital gains tax rollover relief.

1 This announcement does not constitute an intention to make a takeover bid under s631 of the Corporations Act.

2 Based on the closing price of APA securities of $6.38 on 15 July, the last trading day prior to the announcement of the proposal.

3 Including the Envestra shares currently held by APA.

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Benefits of the proposal

APA Group Chairman Mr Len Bleasel AM said that APA is uniquely positioned to offer full value for Envestra shareholders and, importantly, the benefits of continued exposure to Envestra’s assets as part of an enlarged APA Group.

“The combination of Envestra and APA is a logical next step in creating Australia’s preeminent energy infrastructure group with a diversified and integrated suite of assets. Envestra’s 22,500 km of natural gas distribution network, together with APA’s extensive pipeline infrastructure, will form a unique footprint of natural gas infrastructure assets.

“If the proposal is implemented, both Envestra shareholders and APA securityholders alike will enjoy the benefits of scale, integration and diversification of the combined group”, Mr Bleasel said.

The combined group is expected to have a market capitalisation of approximately $6.6 billion[4] which will place it within the 40 largest entities in the ASX All Ordinaries Index. Furthermore, the combined group is expected to have a stronger balance sheet and improved access to a broader range of more liquid capital markets and more competitive sources of funding.

Mr Bleasel said APA will continue to operate the combined APA and Envestra assets with minimal integration risk due to the existing asset management agreement in place.

“Furthermore, APA’s involvement with Envestra’s business and assets puts it in the best position to efficiently operate and sustainably grow the business, creating further value for all securityholders of the combined group.

“The benefits of growth, security and value experienced by APA securityholders will continue with the addition of the Envestra assets – the combined group will be well placed to deliver long term, sustainable growth across all asset classes, provide security from a more balanced mix of regulated and unregulated revenue, and generate value with its highly skilled workforce operating APA’s integrated asset portfolio,” Mr Bleasel said.

APA has a proven track record of delivering sustainable and growing distributions and increasing securityholder value. On a total securityholder return basis, APA has outperformed the market since listing in June 2000, with a total securityholder return of 845 per cent compared with 173 per cent for the S&P/ASX 200 Accumulation Index[5] .

Conditions

The proposal is subject to a number of pre-conditions, including satisfactory completion of limited due diligence, finalising financing arrangements that address Envestra’s resultant

4 Based on the APA security price of $6.38 as at close of market on 15 July 2013.

5 Sourced from IRESS. Total securityholder return (TSR) is the capital appreciation of the company’s security price, adjusted for capital management (such as security splits or consolidations) and assuming reinvestment of distributions at the declared distribution per security. The period analysed is from 13 June 2000 up to and including 15 July 2013, the last trading day prior to the announcement of the proposal.

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and ongoing debt requirements and the unanimous recommendation of Envestra’s board of directors[6] . Further information on the conditions is set out in Annexure A.

It is intended that the proposal would proceed by way of an Envestra scheme of arrangement on customary terms.

Analyst and investor briefing

APA Managing Director Mick McCormack will host an analyst briefing today in respect of this announcement via teleconference. Teleconference details are provided below.

Conference call: Date: Tuesday 16 July 2013 Time: 11.30 am AEST

Dial-in details: Within Australia: 1800 354 715 International: +61 2 8823 6760 Conference ID: 19487914

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Mark Knapman Company Secretary Australian Pipeline Limited

For further information please contact:

Investor enquiries: Media enquiries: Chris Kotsaris David Symons Telephone: (02) 9693 0049 Telephone: (02) 9212 4666 Mob: 0402 060 508 Mob: 0410 559 184 Email: chris.kotsaris@apa.com.au Email: media@apa.com.au

About APA Group (APA)

APA is Australia’s largest natural gas infrastructure business, owning and/or operating $12 billion of energy assets. Its gas transmission pipelines span every state and territory on mainland Australia, delivering approximately half of the nation’s gas usage. APA has direct management and operational control over its assets and the majority of its investments. APA also holds minority interests in energy infrastructure enterprises including Envestra, SEA Gas Pipeline, Energy Infrastructure Investments and GDI.

APT Pipelines Limited is a fully owned subsidiary of Australian Pipeline Trust and is the borrowing entity of APA Group.

For more information visit APA’s website, www.apa.com.au

6 The APA Group executives on the Envestra board intend to absent themselves from discussions pending agreement with Envestra on appropriate protocols.

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ADDITIONAL INFORMATION

Combined group fact sheet

Combined group fact sheet
	APA1	Envestra2
Natural gas pipelines	13,076 km	1,124 km
Distribution networks mains length	2,800 km	22,519 km
Network connected gas users	83,000	1,140,216
Other energy infrastructure assets	2 gas storage facilities 450 MW power generation3 239 km HV electricity transmission 2 gas processing facilities	n/a
Employees	1,500	14
Asset location	Mainland Australia	SA, Vic, NSW, Qld, NT

1. APA assets and investments, excluding Envestra assets as at 30 June 2013.

2. Envestra asset information as at 30 June 2012.

3. Includes the Diamantina and Leichhardt power stations under development in a joint venture with AGL Energy.

Further information in relation to Envestra assets[7]

Envestra’s gas networks operate as regulated natural monopolies providing long-term reliable cash flows.

Regulatory decisions are now in place for key networks until at least end 2016 financial year as shown below.

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Envestra has a $1.3 billion capital works program approved under the current Access Arrangements.

7 Source: Envestra – Envestra presentation to UBS Emerging Companies Conference, 11 April 2013

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APA and Envestra infrastructure assets

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Darwin
Brisbane
Perth
Sydney
Adelaide
APA Group gas infrastructure assets and
investments, excluding Envestra assets
Envestra gas infrastructure assets
Other natural gas pipelines Melbourne
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ANNEXURE A

1 Pre-conditions to a binding proposal

The making of any binding proposal by APA Group would be subject to the following preconditions:

• Satisfactory completion of a limited due diligence review;

• Other than an assumed 3.0 cent per share final dividend payable in respect of the 2013 financial year, no further dividends or distributions being paid and no further equity being issued by Envestra (including under Envestra's Dividend Reinvestment Plan);

• Finalising financing arrangements (on terms satisfactory to APA Group) that adequately address Envestra's resultant and ongoing debt requirements;

• The entry into a Scheme Implementation Agreement, through which (inter alia) Envestra's non APA Group-affiliated directors undertake unanimously to recommend[8] APA Group's proposal to Envestra's shareholders and agree to typical deal protection and exclusivity arrangements (including a break fee equal to approximately 1 per cent of transaction value[9] );

• Upon entry into a Scheme Implementation Agreement, all of Envestra's non-APA Group affiliated directors indicate publicly that they will support and vote in favour of the proposal, in respect of all shares that they hold or control[8] ; and

• Upon entry into a Scheme Implementation Agreement, Envestra's other significant shareholder, Cheung Kong Infrastructure Holdings (Malaysian) Ltd, makes an announcement that it intends to support and vote in favour of the proposal (in the absence of a superior proposal), in respect of all shares that it holds or controls.

2 Acquisition conditions

It is APA Group's intention that any binding proposal would be subject to customary terms and conditions. This would include a condition that the Australian Competition and Consumer Commission has not instituted or threatened to institute proceedings to restrain or otherwise materially impact on the completion of the offer. Any binding proposal would also be conditional on any other required regulatory approvals being obtained by both APA Group and Envestra.

8 In the absence of a superior proposal and subject to the Independent Expert concluding that the Scheme is in the best interests of Envestra's shareholders.

9 Based on all of the shares on issue, including those held by APA Group, at the indicative proposal consideration.

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