NGC directors give qualified support to 'fair' Vector bid

NGC Holdings' independent directors today gave qualified support to Vector's takeover offer at $2.91 per share, a price independent advisers deemed "fair".

"The independent directors of NGC Holdings Ltd are recommending that shareholders accept the takeover offer from Vector Limited of $2.91 per share, but draw attention to some key issues they should consider," they said in a statement.

Independent advisers Grant Samuel & Associates assessed the underlying value of NGC shares to be in the range of $2.50 to $2.76 and concluded that Vector's offer was fair, as it exceeded this valuation range.

The Grant Samuel report, however, stated that that was not a sufficiently compelling reason to accept the offer.

The report refers to the ability for shareholders to currently realise a higher price by selling on market, and the limited alternatives available for investment in the energy sector in New Zealand.

Vector has already secured control of NGC after buying Australian Gas Light's two-thirds stake for $820 million. Under takeover laws, Vector must make an offer to all shareholders when it buys a stake of 20 per cent or more.

"Acknowledging that the offer price is 5.4 per cent higher than the top of the valuation range, and also concluding it is fair, the independent directors recommend that shareholders accept the takeover offer from Vector, subject to careful consideration of other factors and their effect on shareholders' personal circumstances," the directors said.

The committee of independent directors comprises Richard Bentley (chairman), Rick Bettle and Fran Wilde. Messrs Bentley and Bettle said they intended accepting the offer.

They pointed out NGC's "attractive yield", the potential of a higher subsequent offer or the inability to gain ongoing exposure to the historically attractive energy infrastructure sector, as factors shareholders should consider.

Noting that NGC's current share price of $3.00 is above the offer price, they suggest shareholders should consider selling their shares on market.

NGC shares were trading at $2.51 before the April announcement that NGC was in potential merger discussions with both Powerco and Vector.

Grant Samuel said that in the absence of the Vector offer or other merger activity, NGC's shares could trade below the offer price under current market conditions.

NGC's 9.7 per cent dividend yield, based on the offer price and the 2004 financial year dividend payout, is among the highest of any of the top 20 New Zealand listed companies.

"Shareholders accepting the offer may find it difficult to reinvest in a comparable company providing a similar yield.

"However, there is no guarantee that the current level of dividend payments will continue in the future," the report says.

NGC's cash flows and dividend payments currently benefit from access to low cost Maui gas and this access will fall significantly from 2006 with an adverse impact on future cash flows and dividend payments.

On the other hand, following the full takeover of Powerco, NGC has become the only significant energy infrastructure company listed on NZX.

"NGC shareholders accepting the offer will find it difficult to reinvest immediately in an energy infrastructure sector that has delivered attractive returns in recent years."

Vector plans to list on NZX in the next year but there was no guarantee of that happening and access to its share would be limited.

The independent directors said they believed it highly unlikely there would be a higher bid other than from Vector.

"However, Vector could make a subsequent offer on different terms if it does not reach the compulsory acquisition threshold of 90 per cent of NGC shares."

There was "considerable speculation" about the potential for Vector to make a subsequent, and potentially higher, offer or one that includes an opportunity for them to obtain Vector shares.

"A listing will enable Vector to offer scrip to NGC shareholders should it make a subsequent offer. This would potentially benefit NGC shareholders, but there can be no certainty that Vector will make such an offer."

Vector's origin offer would have given NGC shareholders who accepted preferential entitlement to a Vector offering but that was later withdrawn.

- NZPA