Lyttelton Port offer too low says the market

The sharemarket is sending a clear message to Christchurch City Holdings: Its takeover offer for Lyttelton Port is too low.

The port's shares closed at $2.20 yesterday. That is a 10c premium to Christchurch City's $2.10 a share bid for the 31 per cent of the port it does not already own. Since the takeover was announced on February 13, the shares have been steadily increasing in value from a price of $2.11 before the deal was made public.

If the Christchurch City bid succeeds, it will delist the port and sell a 49 per cent stake to Hong Kong-based port operator Hutchison Port Holdings for $2.10 a share or $107 million.

Not only investors, but some market analysts, also see the bid price as weak.

After Lyttelton Port's better-than-expected half-year result this month, Goldman Sachs JB Were analyst Marcus Curley called the bid "a relatively low offer price". The port's adjusted net profit was up 12 per cent on last year to $5.4 million, beating Curley's forecast by 8 per cent.

He said fair value was $2.26 to $2.57 a share.

"Based on our revised earnings estimates and takeover multiples for Port of Auckland activities, we now believe fair value for 50 per cent of Lyttelton Port is $2.26 to $2.57 per share," said Curley. "In other words, the strong first-half 2006 result has added 6c per share to our strategic valuation of Lyttelton Port."

Hamilton Hindin Greene partner Grant Williamson said his firm and the market see the offer as "too light".

"From our point of view and from the market's point of view, I think $2.10 is not sufficient in order for them to get to that 90 per cent threshold they need," said Williamson.

If Christchurch City's bid reaches 90 per cent acceptance, the offer will automatically succeed or trigger compulsory acquisition.

"I think Christchurch City Holdings will have to pay a premium to gain control of a strategic asset in the Canterbury region," said Williamson.

Investors are still awaiting a target company statement including an independent adviser's report on the offer's merit. The port has commissioned Crighton Anderson Corporate Finance to prepare the report, which is to be sent to shareholders by March 22.

The port's board of directors, headed by chairman Barney Sundstrum, said it would not tip its hand on the bid until the report was released.

The offer opens tomorrow and closes by April 10.