Otago puts lid on Lyttelton Port play

Port Otago yesterday blocked a $214 million takeover bid for Lyttelton Port winning a stake in talks over the consolidation of the South Island's ports.

Port Otago stood in the market for 2.2 per cent of Lyttelton Port's shares at $2.35 apiece, lifting its stake to 10.1 per cent.

This is sufficient to stop the bidder, Christchurch City Council, from reaching the 90 per cent threshold, at which it can compulsorily acquire the outstanding shares. As a result, it stymies the city's plan to onsell a near half share to Hong Kong's Hutchison Whampoa, one of the world's largest port operators.

Lyttelton Port's shares fell 1c to $2.20, but were still well above the $2.10 a share offer by Christchurch City.

Port Otago chief executive Geoff Plunket said Port Otago had bought the stake as a long-term investment.

"For a period of time, there have been comments about the need for consolidation in the industry. We do not have a view on Hutchison, but we are interested in talking to all parties."

Christchurch City said it would be meeting Port Otago in the near future to discuss how this relationship would be managed.

"Christchurch City Holdings will continue with its takeover offer [which] will be mailed on Monday (March 13) as scheduled."

Port Otago has a lot to lose if it is left out of a deal between Lyttelton and Hutchison. The Hong Kong company would bring capital resources, world best practice and greater bargaining power with the major shipping lines, attracting lucrative container traffic.

After Lyttelton Port's better-than-expected half-year result this month, Goldman Sachs JBWere 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 Ports 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 saw 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."