Tight hold on power

Shareholders are locked in a struggle for control of NZ's fourth-largest electricity company, reports Mark Reynolds.

This story is about trust between business people - or rather a lack of it.

It concerns four main shareholders wrestling for control of one of our largest companies, which they all outwardly agree should expand.

But because of their mutual suspicion of each other, the company the shareholders are vying for is in danger of being constrained by boardroom battling. In the competitive environment in which it operates, that would be disastrous.

The company is Tauranga-based TrustPower - our fourth largest power company and supplier of electricity to more than 200,000 consumers spread from Auckland to Invercargill.

TrustPower is also the second-largest independent generator of electricity with 32 power stations ranging from Kaimai in the Bay of Plenty to Arnold in Southland.

For more than a year TrustPower has, in sharebroking parlance, been "in play." It has been a takeover target.

Keen investors have recognised its big customer base and spread of generation assets would be the ideal foundation from which to build a nationwide utility company. It has the economies of scale vital to making money in such a low profit margin industry.

At the start of the takeover bout, only one contender appeared to be in the ring.

That was infrastructure and investment company Infratil, which in 1994 had secured a 20 per cent "cornerstone" holding in TrustPower from the community authorities that then owned it.

Infratil was to be a long-term shareholder, supportive of community interests. But early this year, when Infratil was secretly making moves to push TrustPower into alliances with other power companies around the North Island, a challenger appeared.

The adversary was Sydney-based Australian Gas Light Co, which at the time had a one-third share of New Zealand's largest gas distribution and retail company, Natural Gas Corp.

In an extraordinary move, AGL secured a foothold 7.5 per cent stake in TrustPower after TrustPower placed 14.2 million shares in itself with the Australian company.

That moved outraged Infratil and the man who managed its assets, Lloyd Morrison of investment group Morrison & Co. Mr Morrison's response was to team up with another overseas power industry player, Alliant International of the United States.

Alliant bought about 4 per cent of TrustPower and in mid February formalised an agreement to "work together on future electricity investments in New Zealand" with Infratil.

Last week, Alliant and Infratil said they jointly controlled a 43 per cent stake in TrustPower.

Their holding would have topped the crucial 50 per cent mark for outright control but for a spoiling move that has been shrewdly played by community and local authority shareholders in the Tauranga region.

A key player in that manoeuvring has been Jan Beange, a Tauranga-based lawyer who some say has aspirations to be mayor of the city.

Jan Beange chairs the Tauranga Energy Consumer Trust, which owns just over 22 per cent of TrustPower on behalf of consumers. Importantly, the trust also has a web of agreements that give it power of veto over various shareholdings in the company changing hands.

One of those holdings was a 7.6 per cent stake that Tauranga Civic Holdings - a local authority trading enterprise owned by the council - had agreed to sell to Alliant. But the Tauranga Energy Consumer Trust scuttled the deal and the stake has instead been sold to AGL. Alliant is considering a court challenge.

Jan Beange, meanwhile, has endorsed comments from TrustPower's directors and management to the effect that the company favours cooperating with AGL to build a larger power operation in New Zealand.

TrustPower's curt but canny chairman, Avon Carpenter, says AGL "has assets that could bring some real value in an association with TrustPower."

Those assets are Natural Gas Corporation's operations in New Zealand, which AGL now controls after buying a further third of the company from Fletcher Challenge Energy last month.

If TrustPower and Natural Gas were able to merge their assets, the result would be New Zealand's third-largest retail electricity and gas company with the muscle to take on Contact Energy and TransAlta. It would have more than 350,000 power customers. Creating that merged operation is Mr Carpenter's endgame.

But he wants to achieve it without letting AGL gain control of TrustPower, although it was he who led the move to dilute Infratil's influence over TrustPower by bringing AGL into the company.

Mr Carpenter contends the TrustPower board never said it wanted AGL to have the controlling interest and indeed does not favour AGL or any other shareholder or group of shareholders as far as control is concerned.

He said the board's responsibility was to work for the benefit of all shareholders, and that none of the directors were directly aligned with any of the big shareholders.

But that could change, with Alliant, Infratil and AGL all privately suggesting they might like to have a seat on the board.

Whether that happens could come down to the voting power of Jan Beange and her community trust. She told the Business Herald she would like a cooperative approach for board appointments and indeed the whole direction of the company.
"It's important that the management and directors be allowed to get on with the job and our view is that we don't want the differences at shareholder level to inhibit the management team."

But Chris Lindell, Alliant's manager in New Zealand, says such restraints have already occurred.

"We think our company has some strengths and expertise that if we were allowed to share with TrustPower could add significant value to the company. But we are not being allowed to bring those to the table," he said.

Alliant is a unit of Interstate Energy Corp of the United States, a company with more than $US5 billion in energy assets internationally.

Mr Lindell has said Alliant is "in for the long haul" with its TrustPower investment and closely cooperating with Infratil. The two companies are also jointly bidding for power assets in Australia.

But it is persistently murmured that Infratil would consider calling it quits on its TrustPower investment -
- if AGL came up with a good price.

AGL's agenda is that it wants to diversify both geographically and sectorally, to compensate for an expected earnings squeeze in its traditional gas distribution and marketing operations in Australia. AGL chairman Len Bleasal has said a push into power generation and expansion in New Zealand is "very clearly on our minds."

But while the shareholder impasse at TrustPower continues, solid progress down that path is unlikely.

In breaking the deadlock, the Tauranga Energy Consumer Trust will be the key player. In particular, its vote would decide who wins any battle for the company's boardroom.

But Jan Beange suggested the trust favoured the status quo "We trust the directors, and while we take an interest in what they are doing, we don't ask to get in around the board table to have a look at all the strategic work that has been done.

"Essentially we trust independent directors. I think it is trust that this is all about."