Powerco takeover looks set

By CHRIS DANIELS

A successful takeover of Powerco by Australian investment fund Prime Infrastructure looks likely to succeed. But it faces a potentially difficult job marketing its capital bonds to 19,000 small shareholders to fund the deal.

Prime Infrastructure agreed this week to buy a 53.6 per cent stake in Powerco from the New Plymouth District Council and two community trusts for $2.15 a share. Under the Takeovers Code, it will now offer all shareholders the same deal, which is part cash and part bonds.

All shareholders in the powerlines and gas transmission company will be offered the same deal, but can choose to be paid in cash, converting securities or a mixture of both (62.5 per cent cash, 37.5 per cent securities).

If everyone asks for cash, there will be some scaling.

Powerco shareholders may be hoping for some assessment on the quality of the Prime bonds being offered instead of cash. Corporate debt issues in New Zealand are notoriously mispriced, with local investors getting lower rates of return than those overseas.

The Prime bonds, which will pay 8.5 per cent interest, will not be rated by any credit-rating agency.

Regardless of this, the high share price is likely to mean the offer succeeds, leading to Powerco leaving the New Zealand Stock Exchange, to be eventually replaced by Prime, which says it will list here.

Government ministers and the Overseas Investment Commission must approve the Powerco purchase.

Forsyth Barr managing director Neil Paviour-Smith, whose company is helping advise Prime on the offer, said while a cash offer was easier to understand, it could be easier for shareholders to be presented with an option, which they could pick according to their circumstances.

Brokers ABN Amro are advising their clients to sell into the Prime offer and opt for the cash, saying that the "smart money" is in the generation and retail side of the energy sector, not transmission.

Of the 19,000 shareholders, 1600 hold 1000 shares or less, and 15,500 have between 1000 and 5000. At current prices, 1000 shares are worth $2060; 5000 shares, $10,300.