Reject offer, say Horizon Energy directors

Horizon Energy chairman Rob Tait.

Horizon Energy directors are recommending shareholders reject Marlborough Lines' partial takeover offer for 51 per cent of the company.

Horizon chairman Rob Tait today said the $3.96 a share offer from Marlborough Lines was at the bottom of a valuation range determined by an independent adviser.

A month ago Marlborough Lines announced the bid for electricity distribution business Horizon, which is 77.3 per cent owned by Eastern Bay Energy Trust.

Whakatane-based Horizon's target company statement was published today, and Mr Tait said the energy trust's decision would determine the outcome of the offer.

The Horizon directors considered the independent adviser's valuation range of $3.96 to $4.68 per share to be conservative, he said.

"This is a single offer for control of the company.

"Directors have pointed out to the major shareholder that if it proposes to sell its shareholding in Horizon Energy, a competitive sale process may produce a higher value outcome than Marlborough's offer for all shareholders," Mr Tait said.

Shareholders should read the target company statement, the independent adviser's report and wait for the trust to make clear its intentions.

"The directors have urged the trust to advise its intentions well before the closing date so that other shareholders can take appropriate action before that date."

If the trust did accept the offer and control of Horizon Energy passed to Marlborough Lines, minority shareholders would maximise value for their shareholding by also accepting the offer, Mr Tait said.

If the offer, which closes on October 30, was successful, shareholders may face reduced liquidity and potentially a lower share price in the future.

"So, for the benefit of minority shareholders only, the board has recommended acceptance if the trust accepts or does not advise its intentions prior to the close of the offer."

Trust chairman David Bulley said the trustees would be reading the target company statement and independent adviser's report in the next few days.

He expected the trustees to meet within the week to consider the trust's position and said he could see no reason to delay announcing a decision after that.

The independent adviser's report, by Simmons Corporate Finance, said Marlborough Lines' offer was a premium of 34 per cent above the $2.95 last trading price of Horizon shares before the offer was announced.

The offer was also at a premium of 25 per cent to 34 per cent over the volume weighted share price measured over one to 12 months.

But the adviser's report also said trading in Horizon's shares was "extremely thin" with only about 0.8 per cent of the free float traded on average each month.

In the adviser's view, the combination of illiquid shares and limited earnings guidance from the company meant the observed share prices may not be a totally reliable indicator of the market value of Horizon's shares.

During the 2009 financial year the trust had undertaken an in-depth strategic review of its shareholding in Horizon, the report said.

Following a market testing process it received non-binding amalgamation proposals from interested parties, including Marlborough Lines.

Following an assessment, the trust had said it would not support any amalgamation proposal.

The trust's reasons were that Horizon was a strategic local asset and any amalgamation could result in loss of control in the area and a loss of employment, the report said.

"The trustees felt strongly that the projected cost savings were not significant enough to proceed and resolved not to take the matter any further."

- NZPA