Nail-biting wait on Shell deal

By GEOFF SENESCALL

The market will be on tenterhooks today as it awaits a crucial verdict from the Commerce Commission on whether one of the biggest cash bids for a New Zealand company has traction.

The commission is not expected to reveal its ruling on Royal Dutch Shell's bid to buy Fletcher Energy until after the market closes.

This gives punters a further nail-biting day to speculate on the outcome of the offer valuing Fletcher Energy shares at around $11.22 each, which includes nearly $3 billion in cash.

Brokers and institutions are divided on how the commission will rule after being bitten last month when Shell's initial application was turned down.

But although the competition watchdog is apprehensive over Shell gaining dominance in the gas market, the Overseas Investment Commission thinks it is a good deal.

In a document obtained by the Business Herald, the commission lists several benefits in making its decision to sanction Shell's purchase including:

* Increased employment opportunities across New Zealand.

* The introduction of significant development capital.

* Enhanced production efficiencies, which in turn are likely to result in increased productivity.

* The introduction of new business skills and relevant experience in the exploration and production of oil and gas.

* Added market competition through the proposed divestment plan, particularly that relating to the divestment of the retail business of Challenge Petroleum.

Fletcher Energy's share price closed up a further 5c to 850c yesterday in reasonably active trade. This follows a 28c rise the previous day when the Commerce Commission announced that Shell was offering to sell further gas assets - Fletcher Energy's interest in the Mangahewa and Kaimiro fields, making up around 7 per cent of New Zealand's known gas reserves.

It is believed Shell's rationale for including both assets in its application is to further reduce any perception of dominance in the local gas market beyond 2009. This was a key concern of the commission.

Most market-watchers read Shell's late adjustment to its application as a sign there had been some positive dialogue with the commission.

As broker Brett Wilkinson of DF Mainland Securities said, much work must have gone into getting the deal over the line. "I would be surprised if it doesn't go ahead."

If it does it will please, among others, most local institutions who are overweight in Fletcher Energy. A sale at the proposed price would improve their performances in the short term.

However, there is a flip-side. If Shell wins, the market will lose yet another large, liquid, quality company.