Stock takes: Dam drought

State-owned Meridian Energy's sale of its Southern Hydro assets in Australia for $1.5 billion four years ago looked like a pretty good deal at the time, representing a profit of about $640 million.

Not wanting to trivialise what is a huge problem for Australia as a whole and often a tragedy for individuals including farmers, the sale is now looking very, very timely given the challenging hydrological conditions since.

The buyer, AGL Energy, said this week it was standing by the assets despite the worst drought on record severely constraining output from the hydroelectric plants it acquired from Meridian.

AGL had assumed that dry conditions evident at the time of the deal would abate, but the March quarter saw the worst-ever flows into the Murray River system. Now one of the two main dams is only 12 per cent full and the other stopped generating in 2007 and is unlikely to start up again until 2011, say media reports.

When AGL bought the assets, the managing director at the time, Greg Martin, said higher dam levels were important. "They're currently well on their way to recovery from the lows experienced in the recent drought," he said.

At least some climate scientists are expecting Australia will suffer more and more droughts in coming years.

You have to wonder whether Meridian and its own hydrology experts saw this and acted accordingly.

AGL shares closed at A$14.40 on the ASX yesterday.

BIDDING FOR AN S

NZX's bid for second-tier Australian market operator NSX is deftly timed but faces some stiff opposition.

NZX has made its offer while the Australian company's management shareholders and board are engaged in a battle for control.

A group of shareholders led by two former directors has gathered sufficient support to "requisition" or force a vote to oust the board and replace them with their own representatives.

Steven Pritchard and Paul Seymour believe the company has lost its way under the present board and NSX's results and share price movements in recent years appear to support that view.

Pritchard and Seymour have the support of 14.66 per cent shareholder Brian Price, an Australian market veteran who continues to operate market businesses of his own.

The "requisitionists", however, don't have the support of 13 per cent shareholder Guinness Peat Group.

Neither GPG nor Price are impressed with NZX's offer, with Price this week telling Stock Takes NZX is looking to take control of the company at a discount by paying A15c a share for enough new shares to give it 50.1 per cent.

Yesterday NSX shares closed at A18c.

The deal has been thrashed out with the very directors Pritchard, Seymour and Price believe have steered the company poorly and who are unlikely to remain in place for long. Price reckons the boardroom issue needs to be settled before any deals, including NZX's offer, are considered.

He professes some admiration for NZX's approach, coming as it does while the target company is weak and its stakeholders divided. But while it's a good deal for the New Zealand market operator, it's "completely oppressive" to existing shareholders.

GPG's Gary Weiss pretty much said the same thing to Stock Takes this week, pointing out none of NZX's cash goes to existing shareholders, and the price is at a discount to the market.

It's probably safe to assume GPG paid a lot more per share for its stake in the business than NZX is offering and Weiss reckons the current market pricing doesn't represent the company's real value as the owner of two Australian market licences.

GOODBYE NELSON

Times are tough for Sydney-based Kiwi property magnate Greg Goodman.

His troubled listed property vehicles GPT Group and Goodman Group have sold European properties worth a collective A$332 million in order to drive down debt and focus on their core Australian businesses.

Now it looks as though he's having to let go of the toys. Australian media is reporting he has put his A$20 million, 43m sloop Nelson up for sale.

How long can it be before his US$23 million Bombardier Challenger 604 corporate jet goes the same way?

TAKEOVER TAKE-OFF

The recurring story of Air New Zealand being ripe for a merger has been revived by the Sydney-based Centre for Asia Pacific Aviation. The centre believes merger talks could be back on the table by the end of the year.

This follows remarks last year by outgoing Qantas head Geoff Dixon that the New Zealand national carrier was likely to be a takeover target.

One part of the equation missing is a willing seller. Air New Zealand is 75 per cent owned by the Government which would take a fair amount of persuasion to part with it.

What would be the point of selling at a knockdown price in the wounded airline sector and where would the political upside be?

Given Air New Zealand's role in bringing in tourists - the numbers are weak at the moment but will inevitably recover - there are vital strategic reasons for keeping the national carrier just that.

Then there are competition issues which have halted merger moves before, not to mention airlines' fear of ending up on the wrong side of any deal with rivals. Code share deals, let alone mergers, have ended in tears because of natural distrust.

Air New Zealand shares closed up 1c at $1.09 yesterday.

PLEASE EXPLAIN

Pike River Coal had to answer a "please explain" query this week from the ASX after a surge in its share price.

The miner is moving closer to long-delayed delivery to market of its hard coking coal for steel manufacture, which saw its share price spike this week to A88c from A61c on May 1.

On the NZX Pike River's price leaped from 75c on April 29 to $1.08 this week. In response to the price query, Pike explained its successful $45 million capital raising had been completed, that two broker analyst reports had re-rated the company's share price outlook and there had been positive news reports relating to the steel industries in China and India.

Another report, this time from Goldman Sachs JBWere in Melbourne, on the state of the market provides encouraging news for coking coal.

The analysis finds that in China demand for coking coal is stepping up markedly to fill the gap left by sagging demand in Japan and Europe.

Having averaged imports of six million tonnes a year for the past five years, China is expected to import 13 million tonnes this year.

Goldman also forecast a 2010-11 contract price of US$120 a tonne for Australian hard coking coal.

Pike River shares closed down 3c at $1.05 on the NZX yesterday.

LIKE GOD - BUT WITH A BETTER SUIT

Brian Price, cornerstone shareholder in the Australian market operator NSX, which our own NZX is looking to take control of, is an interesting character.

Originally from Canada, he's now a veteran of Australia's capital markets and his company operates the country's electronic interest rates swaps market. He's also something of a writer and came up with the original idea behind the 2001 Australian film The Bank, featuring Anthony LaPaglia as a ruthless banker intoxicated with his own power.

"I'm like God but with a better suit," LaPaglia's character memorably declares at one point.

The film, which taps into what appears to be an even deeper distrust of the banking industry in Australia than exists in New Zealand, sports the official tagline: "Public enemy number one - The Bank." Who would have thought a couple of decades working in Australia's finance industry could lead to such cynicism!