Money Editor for NZ Herald

Mighty River will sell - broker

Asset sale too far advanced to stop, even if the Tiwai Pt talks collapse, expert says

Mighty River's share price could be affected if the Tiwai Pt smelter closes. Photo / Alan Gibson
Mighty River's share price could be affected if the Tiwai Pt smelter closes. Photo / Alan Gibson

The partial sale of Mighty River Power is unlikely to be stopped by even complete failure of negotiations between Meridian and Pacific Aluminium over the Tiwai Pt smelter's electricity price, a broker says.

The Government yesterday revealed it had stepped in to negotiate directly with Pacific Aluminium's majority owner, Rio Tinto, after talks between Meridian and Pacific Aluminium broke down.

In a statement to the stock exchange, Meridian chief executive Mark Binns said that despite significant efforts by both parties a "major gap" remained between them and Meridian believed it was "unlikely" a new agreement could be reached with Pacific Aluminium.

The deal affects all power generators because the Tiwai smelter uses about 14 per cent of New Zealand's total power supply and if it was shut, it could result in a major oversupply of electricity.

That would be good news for consumers, but not for the power companies as it could send wholesale rates plummeting, affecting profits.

But Grant Williamson, a director at broker Hamilton Hindin Greene, said even if the negotiations failed he doubted the Mighty River sale would be stopped.

"There might have to be some more disclosures put into the prospectus, but I don't see it being stopped."

Williamson said the sales process for Mighty River Power was too far advanced now to call it off.

"[It] is pretty much done and dusted - there's not that long to go. I don't think this will have a huge impact unless talks break down completely."

Analysts said the negotiation issue could have a small negative effect on the pricing of Mighty River Power's shares.

Milford Asset Management senior analyst William Curtayne said the situation would probably result in the bankers having to alter the pricing of the offer moderately.

For those looking to buy Mighty River Power shares it could mean the company would now be cheaper.

But Mighty River Power was still a great company which was giving off a lot of cashflow compared with what savers could get by putting their money in the bank.

Curtayne said it might also be good news for Meridian in the long term.

He said if the company pulled out of selling power to Rio Tinto, it could sell the power to other energy companies such as Genesis or Contact which would enable them to shut down more expensive operations like the Genesis-owned Huntly and Contact's Otahuhu power station.

"It sounds bad at the headline. But in the long run if the market reacts effectively we could end up with a relatively benign outcome."

Curtayne said it was better that the situation be revealed now.

"It's good for them to come out and signal where they are now. It gives the situation more clarity."

He said it could mean the Government got less money for Mighty River Power, but more for Meridian, which is worth twice as much.

Devon Funds Management analyst Phillip Anderson said it would affect the price of Mighty River Power at the margins.

"But I don't think it is major. I don't think it is a show-stopper. It's a risk which has already been flagged. I don't think anything said changes much."

The Government is in the process of working out the value and pricing of Mighty River Power for its partial float in May.

A prospectus is due out in mid-April, and about 440,000 people have pre-registered their interest in buying shares.

- NZ Herald

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