Takeover target Hastings Diversified Utilities Fund (HDF) has opened the doors to predator APA Group to discuss its sweetened $1.34 billion offer.

Independent directors of HDF’s responsible entity, Hastings Funds Management Limited (HFML), have agreed to hold talks about the takeover bid and terms on which due diligence can be granted.

“The subcommittee of independent directors will also engage with APA about its ability to increase its offer consideration to a value of at least $2.50 per security …” HFML said in a statement on Thursday.

The talks come after gas distributor APA put its latest offer to HFML on Wednesday.

It includes a cash component of at least 60 cents, with the rest made up of a fixed amount of APA securities to give a total value of at least $2.525 a security when combined with HDF’s distribution of 2.5 cents on August 6.

The bid is higher than APA’s original offer of $2.13, and is at a premium to a competing offer of $2.325 per security from Pipeline Partners.

HFML had recommended that securityholders accept the Pipeline Partners bid in the absence of a superior offer.

Analysts at UBS believe APA has the capacity to increase its offer even further, possibly to around $2.60 per security.

“Overall we think (about) $2.50 is not APA’s best offer yet, but rather a practical step to get in the data room and encourage the HDF board to recognise APA as a serious player on the table,” UBS analysts Han Xu and David Leitch said in a note to clients.

But, they added that Pipeline Partners has the right to match APA’s offer and may do so in coming weeks.

APA lifted its bid on Wednesday after receiving clearance from the competition watchdog late last week.

The Australian Competition and Consumer Commission gave the nod to the deal after APA agreed to sell HDF’s Moomba-to-Adelaide Pipeline System.

The UBS analysts estimate the pipeline system could be sold for about $460 million.

Hastings securities closed flat at $2.54 while APA securities were five cents down at $4.90.