The Australian Competition and Consumer Commission (ACCC) announced Jul. 19 that it wouldn’t oppose the proposed acquisition by AE Portfolio Conservative Holding APA Group (ASX: APA, OTC: APAJF) of Hastings Diversified Utilities Fund (ASX: HDF, OTC: None). A necessary condition of the ACCC approval is that APA submitted a legally enforceable pledge to sell the Moomba to Adelaide Pipeline System should the merger go through.

APA owns a number of gas transmission pipelines in Australia, including the Moomba to Sydney Pipeline, the Victorian Transmission System and a 50 percent interest in the SEA Gas pipeline. Hastings Diversified Utilities owns Epic Energy Pty Ltd, which in turn owns several gas transmission pipelines, including the South West Queensland Pipeline (SWQP), the Queensland to South Australia/New South Wales Link (QSN) and the MAPS.

The focus of the ACCC’s concern was the extent to which APA and Epic imposed competitive constraints upon each other, particularly whether the proposed acquisition would be likely to result in higher prices for the transportation of gas or make it more costly or difficult to develop new pipelines.

Without the commitment to sell the Moomba-to-Adelaide system, and in the event a merger with Hastings is ultimately finalized, APA would own all of the pipelines servicing Moomba and have a significant interest in both of the pipelines servicing Adelaide.

In a statement released following the decision APA Group “welcomed” the ACCC’s announcement and noted that it “enables APA to consider its options with respect to its takeover offer.” APA will waive the ACCC condition in its bid package and will also extend the deadline for Hastings stapled security owners to accept its offer.

APA’s offer for Hastings now implies a value of AUD2.16 per share for the target. In mid-December 2011 APA offered AUD0.50 in cash and 0.326 of its shares for each of the shares of Hastings it doesn’t own. That put Hastings’ overall market value at approximately AUD1.06 billion at the time of the original offer.

The AUD2 per share quoted by APA was disputed by Hastings, which claimed that, taking account of interim distributions by both companies, the per-share value of the offer was closer to AUD1.92. Hastings’ manager continues to advise shareholders to reject the APA offer.

On May 15 an entity known as Pipeline Partners Australia, a consortium that includes Canada’s Caisse de Depot et Placement du Quebec and Utilities Trust of Australia, bid AUD1.25 billion in cash, or AUD2.35 per share for Hastings.

On Jul. 13 a subcommittee of independent Hastings directors recommended that shareholders accept the offer. The independent directors’ recommendation is subject to there being no superior offer as well as the receipt of an independent expert’s report that concludes that the offer is “fair and reasonable.”

Westpac Banking Corp (ASX: WBC, NYSE: WBK), which holds about 9 percent of Hastings and is its second-largest shareholder behind APA, has agreed to accept the offer, according to a statement from Pipeline Partners. Pipeline Partners owns about 8 percent of its target.

As of May 15 APA owned 21.14 percent of Hastings, a total of 112,018,334 shares out of 530,001,072 outstanding. The ACCC clearance sets the stage for APA, through whose pipes more than 50 percent of Australia’s natural gas flows, to make a higher bid.

We had praised APA management in recent weeks for its patience on this front. But a recent capital raising on favorable terms provides it the flexibility to continue its invest-to-grow strategy.

The pipeline owner/operator priced a CAD300 million (AUD289.5 million) issue of seven-year fixed-rate medium-term notes with a coupon rate of 4.245 percent in its first foray into the Canadian debt market. Management noted at the time that proceeds would be used to repay existing loans drawn under APA’s current revolving bank facilities.

But the excess is available to support ongoing investment in the growth of its infrastructure assets, specifically those now under the control of Hastings.

Other research analysts have concluded that APA could make a bid of as high as AUD2.50 per share for Hastings while preserving the accretive value of the assets and at the same time maintaining its solid balance sheet.

The Hastings assets and their current owners will realize significant value by attaching to APA. Each of Hastings’ pipelines can be connected to one or more APA lines, forming what APA described in its original offer “a natural fit” with its existing infrastructure.

Consummation of an APA-Hastings merger would result in an energy infrastructure business with unmatched scale in Australia as well as a company with a clear strategic focus on natural gas transmission. The combined entity would own in the neighborhood of 15,000 kilometers of natural gas pipelines crisscrossing Australia proper. The Hastings assets on their own comprise about 2,445 kilometers of lines.

APA’s ability to execute will also benefit Hastings shareholders. APA outperformed Hastings in the market by more than 100 percent in the 10 years leading up to the original December 2011 offer, probably a result of its self-management of operating assets. Part of the offer consists of shares in APA.

Existing Hastings shareholders would benefit from the likely improved management of the assets they already own as well as the proven wealth-building capabilities APA has demonstrated over the long term.

APA Group is an original member of the AE Portfolio. Since we first recommended it in the debut issue of Australian Edge on Sept. 26, 2011, the stock has generated a total return of 42.86 percent in US dollar terms. That compares to 19.91 percent for the S&P/Australian Securities Exchange 200 Index, 15.22 percent for the MSCI World Index and 19.32 percent for the S&P 500 Index.

The stock has rebounded well from a spring decline brought on when its then largest shareholder, Malaysia’s state-owned oil company Petroliam Nasional Berhad, better known as Petronas, unloaded its 17.3 percent stake in order to rationalize its investment portfolio. The sale reportedly went off at AUD4.85 per share. APA closed at AUD4.96 on the ASX today in Sydney, down AUD0.12 on anticipation of a higher offer for Hastings.

The stock remains a compelling wealth-builder, particularly at its current yield of 7.1 percent. APA earns a perfect “6” under the AE Safety Rating System, meaning it has a low overall debt-to-assets ratio, its maturities between now and the end of 2013 are well manageable, it has no direct exposure to commodity-price fluctuations and its payout ratio is modest. Critically, APA hasn’t cut its dividend over the past five years, and it actually raised both its interim and final dividends in fiscal 2012.

And dividend increases are the surest sign of dividend safety.

The Roundup

Following are dates (confirmed, tentative or estimated) for each AE Portfolio Holding’s next earnings announcement. Where companies have reported recently, we’ve included a link to our discussion and analysis of results.

Conservative Holdings

• AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY)–Aug. 22, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• APA Group (ASX: APA, OTC: APAJF)–Aug. 22, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Australand Property Group Ltd (ASX: ALZ, OTC: AUAOF)–Jul. 26, 2012 (confirmed, CY/FY 2012 1H, end Jun. 30, 2012)
• Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY)–May 2 Down Under Digest (FY 2012 first half, ended Mar. 30, 2012), Nov. 5, 2012 (estimate, FY 2012, end Sept. 30, 2012)
• Cardno Ltd (ASX: CDD, OTC: COLDF)–Aug. 14, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY)–Aug. 21, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Envestra Ltd (ASX: ENV, OTC: EVSRF)–Aug. 23, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• M2 Telecommunications Group Ltd (ASX: MTU, OTC: MTCZF)–Aug. 27, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY)–Aug. 9, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Transurban Group (ASX: TCL, OTC: TRAUF)–Aug. 7, 2012 (confirmed, FY 2012, end Jun. 30, 2012)

Aggressive Holdings

• BHP Billiton Ltd (ASX: BHP, NYSE: BHP)–Aug. 22, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• GrainCorp Ltd (ASX: GNC, OTC: GRCLF)–May 23 Down Under Digest (FY 2012 first half, ended Mar. 30, 2012), Nov. 14, 2012 (estimated, FY 2012, end Sept. 30, 2012)
• Grange Resources Ltd (ASX: GRR, OTC: GRLLF)–Aug. 30, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• Mineral Resources Ltd (ASX: MIN, OTC: MALRF)–Aug. 20, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY)–Aug. 13, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• New Hope Corp Ltd (ASX: NHC, OTC: NHPEF)–Sept. 20, 2012 (estimate, FY 2012, end Jul. 31, 2012)
• Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY)–Jul. 24, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY)–Aug. 23, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Rio Tinto Ltd (ASX: RIO, NYSE: RIO)–Aug. 8, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY)–Aug. 29, 2012 (confirmed, FY 2012, end Jun. 30, 2012)