Vector bid raises two concerns

The risks to Vector of political change and regulatory creep have been flagged in an independent assessment of the company's takeover offer for gas distributor NGC.

Valuer Grant Samuel has published its view of Vector's NGC bid, which is accompanied by the first float of shares in the Auckland-based energy network company.

NGC's independent directors have recommended that shareholders accept the offer of $2.62 of Vector shares and 78c in cash for each NGC share.

Vector already owns just over 67 per cent of NGC, after buying out Australian Gas Light's 66 per cent stake last year.

In the Grant Samuel valuation and assessment released yesterday, NGC shareholders are told the offer is fair.

It says the Vector shares to be paid to NGC shareholders will be sought after, with the company ranking as one of the largest on the stock exchange.

"Vector will be one of only a small number of reasonably sized infrastructure stocks listed on the New Zealand share market and as such should attract continuing interest from the investment community."

But the report also raises some areas of concern about Vector. One is the 75.1 per cent shareholding in the company held by the Auckland Energy Consumer Trust.

At the last trust election, 17 candidates stood for five positions, says Grant Samuel.

"As such the trust is a political body, which can change every three years.

"The trustees have not always shared the same vision for Vector. For example, the decision to proceed with the Vector IPO required the chairman to exercise his casting vote."

The trust appoints all of Vector's directors.

Grant Samuel noted a press release from Vector chairman Michael Stiassny which said the trust would have control over "all ordinary and special resolutions".

"This is a highly unusual situation for a public listed company. It is conceivable that a majority [three] of new trustees could at some future time seek to change the way Vector operates, in the first instance, by changing the board."

The prospect of greater Government regulation of the gas business is also raised in the report. "The electricity lines business is highly regulated and indications are that the gas distribution sector will eventually be similarly regulated," it says.

Takeover plans

* Vector is New Zealand's biggest energy network company, operating in the electricity, gas and telecommunications fields.

* The Auckland Energy Consumer Trust, which is publicly elected, owns Vector. It has decided to partially privatise the company, selling off 24.9 per cent for $593 million.

* New Vector shares will be listed and traded on the stock exchange.

* Money raised will be used to pay down debt incurred when it bought 66 per cent of NGC last year.

* With the float, Vector is launching a takeover offer to buy the rest of NGC.

* It is offering NGC shareholders $3.40 a share. It is paying them 78c in cash, the rest in new Vector shares.