$8 a share move for last 20pc of port stuns analysts

Why the hell $8 and why the hell now?

That is the reaction of one stunned analyst to the Auckland Regional Council's $169.6 million takeover bid for the 20 per cent that it does not already own of the listed Ports of Auckland.

The bid values Ports of Auckland at $848 million.

A takeover would lead to the delisting of a company which has been on the stock exchange since 1996.

Ports of Auckland's share price closed yesterday up by $1.57 - or 24.3 per cent - at $8.02 after the bid was announced.

That is just above the $8-a-share offer by the council's investment arm, Auckland Regional Holdings, the owner of an investment portfolio valued at $1.3 billion.

Most analysts approached by the Business Herald doubt a rival bidder will emerge or that the offer will increase.

Analysts see $8 a share as a good price - one calls it a "crazily" high price - but it is the timing that surprises most.

The port company's biggest customer, shipping line P&O Nedlloyd, is about to make an announcement that is pivotal to the company's future.

In association with dairy exporter Fonterra, the shipping line will soon say whether the bulk of its remaining business will stay with Auckland or go south to Tauranga.

At stake is 20 per cent to 30 per cent of Auckland's container business and analysts say the decision will have a big impact on the share price.

One analyst believes P&O signalled a preference for Tauranga by last year removing its Asian shipping service - 8 per cent of container volumes - from Auckland.

This analyst has calculated that losing the P&O/Fonterra export business would carve about $1.20 off the share price.

Analysts also believe an independent valuation of the takeover offer - expected by May 6, along with the target company statement - will show a wide range of valuations of the port company's land assets.

One, who does not want to be named, says the waterfront land is worth about $350 million, but opinions vary.

ARH's chief operating officer, Peter Casey, calls the offer a fair market price.

He also says the importance of the P&O decision is over-rated in the context of the bid.

"Every year, contracts get renewed, and this is a material contact, but whenever you do anything there will be some market issue on the table."

On the issue of "why now?" he says: "Because the board has reviewed its portfolio and has determined the logical move is to get from 80 per cent to 100 per cent."

ARH was "very happy" with the performance of the port company's board.

Asked if board and management would be retained if the bid succeeded, Casey says: "There is full support."

ARH said yesterday it expected its offer to be seen as "friendly".

Under full ownership, all of the port company's land would remain in the public's hands, assisting in the development of the waterfront for port operations and public use.

Asked about selling land or port operations to recoup some of the price that it is offering, Casey says the Business Herald "must understand that the assets are controlled by the Ports of Auckland, not us".

The port company had announced no plans for land sales "and we are very supportive of that, as are the regional council".

He says ARH's ownership will be governed by the Ports Company Act, which says the port must be commercially independent, with its own board and management.

"It would be a case of 'business as usual' under new ownership."

One analyst describes this as ARH's "public mantra at this stage".

Another ports industry commentator says "a sceptic" could argue the takeover bid is an attempt to remove transparency from the business and to remove ARH's investment in Ports of Auckland from the fluctuations of the sharemarket.

Then, if the port company lost the P&O contract, "it won't matter so much".

"At the moment, the listed value of what they have goes up and down depending on what the sharemarket does.

"When they take it out at $8 a share, it's worth a certain amount of money and that's not going to change on the accounts of Auckland Regional Holdings." This analyst says the city council has designs on the company's land assets.

A takeover would give ARH "complete flexibility to do whatever they want with those assets, which could mean selling them, putting in a second motorway crossing the tank farm, or putting up apartments - it could mean anything".

The analyst says the city council and ARH have different views on what should happen with the land "and it could be easier for Regional Holdings to control that if it has 100 per cent".

Analysts say most of the 20 per cent stake in the company that is being sought is held by mum and dad shareholders.

ACC is the biggest of the minority shareholders with a 1.27 per cent stake. An ACC equity analyst says the organisation is yet to form a view on the offer.

As far as market reaction went, Port of Tauranga shares were up 28c to $5.20 on the news, Northland Port gained 20c to $2.95 and Lyttelton Port, which in the middle of an industrial dispute, gained 6c to $1.78.