Vector share float looms

By CHRIS DANIELS

Vector's $1.3 billion bid for NGC promises a public offering of shares in a new local energy giant within 12 months.

Vector put up $3 a share to win the bidding war for the 66 per cent stake in NGC owned by Australian Gas Light (AGL).

Under the Takeovers Code a full takeover offer is required, and Vector is planning to help pay for that with an initial public offering (IPO) of shares - likely to raise several hundred million dollars.

Tyndall Investment Management's James Lindsay told the Bloomberg news agency that Vector shares would have wide appeal.

"These sorts of assets are chunky cash generators so it would appeal to a lot of New Zealand investors on the back of its yield."

The merged companies, with joint annual revenues of $1.02 billion, will dominate New Zealand's energy sector.

The full size of the Vector IPO will not be known until its takeover of NGC is complete.

Nor is the exact timing of the IPO clear, but it must happen within 12 months and will probably be towards the end of that period.

Vector chairman Michael Stiassny said the "equity bridge" provided by bankers ABN Amro to fund the offer meant Vector did not need to rush into any IPO and listing.

Details of the ABN Amro arrangement were not revealed yesterday, but the bankers are likely to earn fees from next year's IPO as well as lending the "equity bridge" money at commercial rates.

Chris Stone, a director of investment bank McDouall Stuart and an energy sector specialist, said he expected any Vector IPO, which would raise "several hundred million", to be very positively received by the investing public.

"That's a pretty big chunk of capital, but the institutions will be very keen to have an exposure to that."

Vector bondholders are also high up the queue for an IPO, with every $1000 of bonds giving the right to buy $500 worth of shares.

Stiassny also hinted at priority for Vector's income beneficiaries in any float. These are power users in Auckland City, Manukau City and Papakura.

Tore Hayward, chief investment officer of AMP Capital, the country's largest fund manager, said it was far too soon to say anything meaningful about the prospects of a Vector float.

"One of the things about IPOs too is that it depends really critically what price they issue. You can get a great company and the price is unattractive for us as an investor, or you might get a company that you might not think is a great company but issues at a price that is good value for money."

AMP would be "looking with real interest" at the independent valuation report for the takeover, particularly since the NGC share price was higher than $3 before the Vector announcement.

Vector wants to gain complete control of NGC so it can fully merge the companies, but says it could operate the businesses separately.

NGC shares fell 6c yesterday to the Vector offer price of $3 a share.

The successful bid, revealed in yesterday's Business Herald, also means facts about the sale, previously suppressed by court order, can now be disclosed.

For six months at least, Vector has been negotiating a private purchase of the AGL stake in NGC. It put together a bid, but AGL decided to put the sale out to a competitive tender, which Vector has now won.

A court battle between feuding factions of Vector's owner, the Auckland Energy Consumer Trust, almost scuttled the deal, but it was eventually approved despite three of the five trustees opposing it.

Vector has also agreed to buy the AGL holding company that owned its NGC shares - part of the deal which will need Takeovers Panel approval.

Vector chief executive Mark Franklin said NGC had complementary assets to Vector, which would allow it to "move upstream" in the business of gas transmission and distribution.