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Peter Yealands has sold 80 per cent of his wine company to Marlborough Lines Company for $89 million.

Shades of the 80s with Marlborough Lines Co's stake in wine company

The acquisition of 80 per cent of Yealands Wine Group by Marlborough Lines Company is a worrying reminder of the 1980s when manufacturers purchased kiwifruit farms, mining companies bought retailers and fitness centres got into property development.

Most of these transactions were not successful in the longer term.

Marlborough Lines was formed as the Marlborough Electric Power Board in 1923. In 1993 it was corporatised, renamed Marlborough Electric and its shares were vested to the Marlborough Electricity Power Trust.

This was a body specifically created to hold the Marlborough Electric shares on behalf of electricity consumers and to appoint commercial directors in place of the originally elected board members.

In 1998, after Marlborough Electric was forced to divest its generation assets, the company became an electricity network owner and operator and changed its name to Marlborough Lines.

One of Marlborough Lines' most prominent features is its excellent annual report. It is far more detailed than that of many listed companies and the company is also more profitable than NZX-listed Horizon Energy, the network operator that services Eastern Bay of Plenty.

The Blenheim-based company reported earnings before interest and tax (ebit) of $12.4 million for the June 2014 year. Horizon had ebit of $9.4 million for its March 2015 year.

Marlborough Lines has three main operations:

• It directly supplies 24,500 customers in Marlborough.

• It has a 50 per cent interest in Nelson Electricity, which supplies the central Nelson city area.

• It has a 13.9 per cent stake in Horizon Energy, which has 24,600 customers in the Bay of Plenty.

The Blenheim-based company is flush with cash after it sold its 51 per cent interest in OtagoNet and Otago Power Services for $152 million late last year. These assets were originally purchased for $55 million in 2003.

On July 2, Yealands Wine said Marlborough Lines had agreed to buy 80 per cent of the company from Peter Yealands for $89 million.

This was contrary to a bold headline in a recent annual report that "The Marlborough Lines Board has a strong preference for investing in electricity networks rather than other non-core investment options".

There has been a mixed response to the purchase but the Marlborough Electricity Power Trust, which owns Marlborough Lines, said it was satisfied with the transaction.

The buy has been criticised for several reasons including:

• It is outside the company's core competencies.

• Two Marlborough Lines directors, Anthony Beverley and James Hay, resigned a few days before the deal was announced.

• Peter Radich, who is listed as Marlborough Lines' solicitor in the company's annual report, is a director of Yealands Wine Group. Radich said he had no involvement in the sales process.

It is difficult to know whether this is a good investment for the lines company but Peter Yealands had a huge smile when photographed celebrating the transaction with Marlborough Lines managing director Ken Forrest.

The big question is - should an electricity lines company be spending $89 million on the purchase of an 80 per cent stake in a wine company or should this $89 million be distributed to customers, which would result in a payment in excess of $3,500 to every customer?