Alinta backs revised $6.7 bln offer from Babcock

Sydney, May 11 (Reuters) Alinta Ltd , Australia's largest energy infrastructure firm, today recommended an improved offer from investment bank Babcock & Brown Ltd. worth up to A$8.14 billion ($6.74 billion), scuttling Macquarie Bank's rival bid.

Perth-based Alinta said in a statement that the Babcock-led consortium had raised its offer to A$16.06 per Alinta share, adding it was worth A$1.00 per share more than the initial board-endorsed proposal on March 30, taking into account the price increase in Babcock's fund securities.

Including potential tax credits on dividends to eligible shareholders of A$0.40 per share, Babcock's revised deal was valued at A$16.46 a share, Alinta said.

''Both Macquarie and Babcock have made very compelling offers and while the board has recommended Babcock's offer, there is still no certainty that Babcock would win the deal,'' said Intersuisse analyst Peter Arden.

''Macquarie could still come back with a better offer or it could use the following months to persuade shareholders on the benefits of the deal. This won't be the end of the saga.'' The tussle for Alinta, which has seen its market value jump 20-fold to about A$7.6 billion since listing in 2000, came after it put itself up for sale following a management buyout proposal in January.

Both Macquarie and Babcock & Brown, Australia's two largest investment banks, plan to carve up Alinta and put its assets, which include five power stations, gas transmission pipelines and a lucrative asset management division, into their own infrastructure funds.

Alinta's shares closed 0.9 percent higher at A$15.39. Babcock shares were up 0.7 percent at A$29.40, while Macquarie's shares were down 1.4 percent at A$88.90.

If the deal goes ahead, Babcock would become Australia's largest infrastructure group.

But analysts said the deal could face opposition from Alinta's institutional shareholders, particularly from hedge funds that own 15.6 percent of Alinta and would have preferred Macquarie's unconditional all-cash offer.

Och-Ziff Capital Management, a hedge fund that is Alinta's largest shareholder with 5.3 percent, queried the assumptions Alinta's board made on the rejecting Macquarie's offer.

''First you assume that (the new listed company) stock trades badly, then you assume that I can cash out of Macquarie but I forget to do that and I end up worse off,'' said a fund manager on an Alinta teleconference.

REVISED DEAL Under Babcock's revised deal, Alinta shareholders would have the option of taking the maximum cash available or the maximum number of securities available, taking all preference shares, or taking a mixture of cash and scrip.

Alinta said Babcock's maximum cash option was subject to an overall cap on a cash pool of A$4.47 billion and the maximum scrip alternative limited to a cap of A$2.13 billion.

The default cash-and-scrip option includes A$8.925 cash and scrip in three of Babcock's funds, while the all preference shares option, which is expected to provide capital gains tax rollover relief, includes exchangeable preference shares in Babcock & Brown Infrastructure fund .

An initial A$7.4 billion offer from Babcock, which has teamed up with state-owned utility Singapore Power, had valued Alinta at around A$15 a share, including A$8.50 in cash, and shares in Babcock's infrastructure, power and wind funds.

Macquarie's rival bid, worth up to A$8.2 billion, has three options: A$15.80 per share in cash, all-scrip in a new listed entity also valued at A$15.80 a share, or a $16.60 per share cash and scrip alternative.

The new company, which Macquarie plans to list, called Energy Infrastructure Australia, would hold Alinta's co-generation power assets, Alinta said.

Alinta Chairman John Akehurst said in the teleconference that the board had reservations about the value of Macquarie's stated A$15.80 a share in the new listed vehicle. The scrip offer is the default option in Macquarie's bid.

''The Babcock & Brown and Singapore Power offer was superior because it provided greater completion certainty and higher confidence in the value of the scrip component,'' Akehurst said.

Macquarie, which was sacked by Alinta as its adviser in January over its role in the management buyout group, had originally proposed a A$15.45 a share offer.

But the proposal, which included a cash and cash and scrip option, was rejected by the Alinta board in March also because of uncertainty over the value of the newly-listed company.

($1=A$1.21) REUTERS PM GC1502