Vector wins power battle

By ELLEN READ

Auckland lines company Vector has won the bidding war for UnitedNetworks, the country's biggest power distributor.

The Auckland Electricity Community Trust-owned power company announced yesterday that its $9.90 a share bid had been successful after UnitedNetworks' 70.2 per cent owner, Aquila, said it would accept the offer.

Vector will now make a full takeover offer for all UnitedNetworks' 151 million shares, valuing the company at $1.5 billion. UnitedNetworks' independent directors have recommended the offer.

Private shareholders own 19.1 per cent of UnitedNetworks and the UnitedNetworks Shareholder Society holds 10.3 per cent in trust for local councils.

UnitedNetworks, New Zealand's ninth biggest company by market capitalisation, will be delisted from the Stock Exchange and replaced in the NZSE-40 index by Fletcher Building.

New Plymouth-based Powerco and Hawke's Bay Network will buy UnitedNetworks' Eastern Region electricity network for $785 million.

Powerco will also buy the Central North Island gas networks for $220 million.

These deals, plus Vector's initial purchase, require shareholder approval.

Vector will finance the whole purchase through bank debt provided by four banks - Bank of New Zealand, ABN Amro, National Bank and Westpac. The electricity lines company will need $1.5 billion for the initial purchase but will then recoup $1 billion from the asset sales, leaving a final funding requirement of $500 million.

Vector chief executive Patrick Strange said comment on how this debt might be repaid or restructured would be premature.

United independent director Mike Smith said Vector's price was "fair and reasonable and in the best interests of all shareholders".

In arriving at the price it is prepared to pay for UnitedNetworks, Vector would have had to consider the risk of new Government regulation of electricity networks.

The Commerce Commission is designing a price control regime for electricity lines companies and is looking into how electricity networks should be valued.

The Ministry of Economic Development has been looking at similar issues in relation to gas networks.

But Vector was unforthcoming on these issues or how material they are to its price for UnitedNetworks. "We don't want to get into that at this stage," a Vector spokeswoman said.

Vector's full takeover offer for the outstanding United shares will be made within 30 days, subject to its agreement with Aquila becoming unconditional.

Aquila has agreed not to consider any other bid for its shares for 150 days, effectively shutting the door on a superior bid overtaking Vector's.

Westpac currency strategist Johnathan Bayley said the deal valued Aquila's 70 per cent stake at $1.05 billion - money Aquila was expected to repatriate.

As it did not, as a matter of policy, hedge foreign investments, the sale could be expected to generate New Zealand dollar selling, he said.

"However, Aquila are known to have New Zealand dollar debt, thus the foreign exchange generated is unlikely to be as large as gross proceeds of $1.05 billion."

Powerco will raise up to $150 million in equity to help pay for its total $810 million purchase of UnitedNetworks' assets.

"The acquisition will cost Powerco $810 million, plus transaction and integration costs, to be funded by a combination of debt and equity," said Powerco chairman Barry Upson.

"The maximum equity amount to be raised is $150 million, which has been fully underwritten by Macquarie."

Hawke's Bay Network chief executive Ken Sutherland could not be contacted to explain how its purchase stake of the UnitedNetworks assets would be funded.

Vector has more than 270,000 customers in Auckland City, Manukau City and Papakura. It is fully owned by the AECT, an elected body which distributes dividends from Vector to every customer connected to its network.

AECT chairwoman Karen Sherry said the purchase meant consumers in Vector's traditional network area could look forward to payouts from enhanced dividends over time.

UnitedNetworks had been on the market since June when Missouri-based Aquila said it was quitting New Zealand to address financial troubles at home.

NGC and Cheung Kong Infrastructure Holdings of Hong Kong were unsuccessful bidders for the company.

UnitedNetworks is one of New Zealand's largest network infrastructure companies, distributing electricity to about 30 per cent of the country's electricity consumers and gas to more than 50 per cent of gas consumers. It owns and manages broadband fibre optic networks in the Auckland and Wellington central business districts.

Vector, New Zealand's second largest power lines company, has already received Commerce Commission approval to take over UnitedNetworks.

UnitedNetworks is twice the size of Vector as measured by assets and revenue. Once the deal is complete, Vector will be the largest electricity lines company in New Zealand with 612,000 electricity customers and 65,000 gas customers in the Auckland and Wellington regions (it now has 274,000 electricity customers).

Powerco's purchase will provide it with gross assets of about $1.7 billion, making it New Zealand's largest gas distribution company and second largest electricity distribution company with 391,000 consumer connections.

Powerco is the publicly listed lines company covering Taranaki, Manawatu, Wanganui, large tracts of the central North Island and the Wairarapa. The New Plymouth District Council owns just under 50 per cent of Powerco.