The US$2.2 billion hostile takeover bid for China Gas Holdings by a consortium that included the mainland's second-largest oil firm, China Petroleum & Chemical Corp (Sinopec), fell through yesterday.
Ending 10 months of uncertainty over the takeover bid for the gas supplier, Sinopec and its ally ENN Energy Holdings said pre-conditions of the bid could not be met by yesterday's deadline and they chose not to go ahead with it.
Instead, Sinopec formed a partnership with China Gas that will allow them to operate downstream gas supply businesses and allow Sinopec to raise its holding in China Gas.
Sinopec has for years held a stake of 4.8 per cent in China Gas.
Many analysts were taken aback by Sinopec's change of heart.
The energy giant teamed up with ENN, a smaller rival of China Gas, and made the unsolicited offer for China Gas in December last year. China Gas strongly opposed the offer.
Christfund Securities research director Simon Lam said the new venture was "a rational alternative for Sinopec, which could not accomplish its ambition to take over the company".
China Gas deputy managing director Eric Leung Wing-cheong said the co-operation with Sinopec came after it gained more understanding of China Gas' business and operations over the past 10 months.
Two joint ventures will be set up by China Gas and Sinopec. They will distribute the liquefied petroleum gas produced by Sinopec's refineries and convert Sinopec's more than 30,000 petrol stations on the mainland into petrol/compressed natural gas refilling stations.
"Which party will be the controlling shareholder in the joint ventures will depend on what contribution each side makes and what resources, experience and technology they bring to the new companies," Eric Leung, the deputy managing director of China Gas, said yesterday after the market closed.
Leung said details of the investment in the joint ventures still required further discussions.
"We need to discuss if China Gas should invest in the joint venture all in cash, or we should also use our current assets, our brand and distribution channels," he said.
China Gas operates in more than 150 mainland cities. It is involved in the construction and operation of gas pipelines and the transmission of natural gas and sale to residential, industrial and commercial users.
Shares of China Gas were suspended yesterday. Trading will resume today. The stock last traded at HK$4.30.
Sinopec closed up 0.9 per cent while ENN fell 1.2 per cent in a market that closed steady.