Half or no deal - ARC head digs in on port

The Port of Auckland.

Auckland Regional Council chairman Mike Lee yesterday cast doubt on the proposed $1.6 billion merger between Ports of Auckland, and Port of Tauranga, saying the local authority would accept only a deal that gave it at least a half share of the new company.

The ARC is the ultimate owner of Ports of Auckland.

Lee said its stake in the new holding company had to be 50 per cent.

"The negotiators have to be left in no doubt about what the local realities are in Auckland."

He was responding to suggestions the proposed merger would give the ARC a third of the new business and the remaining two-thirds to the Environment Bay of Plenty regional council and private Port of Tauranga shareholders.

Environment BoP owns 55 per cent of the Port of Tauranga. Most of the rest is held by private shareholders.

"There is no way we are going to hand over the biggest port in the country and end up with a minority position," said Lee, an advocate of public ownership of infrastructure assets.

"I suggest the negotiators explore this if they want to make some headway."

The ports disclosed last week that they were discussing a merger, but gave little detail on their plans.

Financial market observers and sources close to the talks believe a three-way split between the ARC, Environment BoP and minority shareholders is the most workable solution.

It reflects the relative values of Port of Tauranga and Ports of Auckland - excluding about $160 million of Ports of Auckland land - and the respective shareholders interests.

"This is a complication," said one observer, who believed the ARC could be convinced when the deal was presented in its entirety.

Last week, First NZ Capital's head of research, Rob Bode, said the ARC needed on average $93 million a year, but its income-generating assets - shares, bonds and the port - produced only $55 million to $60 million.

Bode said cost savings from the merger that could feed down to dividends could go a long way to plugging the ARC's funding gap, perhaps even filling it entirely.

He estimated cost savings from the proposed merger, which is intended to counter the growing strength of the international shipping lines and avoid duplication of expensive infrastructure, were worth $200 million

The prospect of these gains meant Port of Tauranga shares would be worth about $6.20 in a year. They closed last night unchanged at $6, well up on their $5.05 price on the day the merger plan was revealed.

Lee said he was making his statement to give Environment BoP and investors in Port of Tauranga a "reality check" and focus the minds of the negotiators.

"We are co-operating on the concept. We believe it is sensible, but we are not going to be ripped off."

The ARC was likely to take a regional poll on the merger, and it needed a proposal the council could back if it was going to win.

Port of Tauranga chief Mark Cairns said it was too early to be discussing stakes in the venture as a formal proposal had not been put before the ports' boards.

The directors of each company would have to provide direction. "[Mike Lee's] comments are a surprise. We are working to finalise the details. It is really too early to comment to shareholders."

Environment BoP deputy chief executive Sandy Lawrie said he hoped all parties would consider the greater good. "We would hope people would look at what is good for the two regions."