Cloud over TransAlta parent's buy-out bid

By Richard Braddell

WELLINGTON - TransAlta Canada's bid for the third of TransAlta New Zealand it does not already own looks doomed.

Conditional upon 90 per cent acceptance, its success depends on the Hutt Mana Energy Trust which holds 14.6 per cent, having acquired an additional 2 per cent since last June.

The trust's chairman, Chris Kirk-Burnnand, said it would give detailed consideration to the independent report by Grant Samuel which placed the $2.50 a share bid at the top of a $1.95 to $2.52 a share valuation range.

But he also said yesterday that although the $208 million bid remained open until Christmas, it was "all over but for the shouting".

But the offer, equal to $1600 for every household in the trust's area, still had to be put to the people in the region, said Mark Manderson, the general manager of TEC Investments, the company that holds TransAlta Canada's 67.4 per cent stake.

"We believe they still have an obligation to consult."

Nevertheless, Mr Manderson said there would be little point in mopping up the minorities if the trust blocked 100 per cent ownership.

Mr Kirk-Burnnand said the offer failed to recognise TransAlta's prospects and, at a price/earnings multiple close to 21.5, was short of international multiples as high as 30. On an earnings before interest, tax and amortisation basis, Grant Samuel forecast a price earnings multiple between 11.5 and 12.5, well short of the 21.5 and 14.5 ascribed to the Edison Mission's buy into Contact and the subsequent public offering.

Grant Samuel justified the difference on the strategic value to Edison and on TransAlta NZ's prospects. TransAlta NZ, after acquisitions such as Power New Zealand's retail electricity business, has 31 per cent of the retail electricity market. But in seven months, TransAlta has lost 4.5 per cent of customers, and is expected to lose more as competition in the retail market heats up.

Mr Kirk-Burnnand said a recent trust survey of TransAlta NZ's 24,000 shareholders found that only 6.2 per cent wanted the trust to sell and most did not want the entire company to fall into foreign hands.

And the remaining shareholders, down to about 30 per cent in number from the original issue three years ago, were unlikely to be attracted by a higher offer.

A reason given for TransAlta Canada's bid is that private ownership would give TransAlta NZ freedom of action in future acquisition opportunities and eliminate delays in getting minority shareholder approval.

But as things stand, it looks as if the two groups will have to find a way to get along that deals with the trust's belief that its interests have not always been properly recognised.

Mr Kirk-Burnnand said that in the past the trust had tended to be politically driven, but was now business-focused.

He also confirmed that the trust had lifted its stake from 12.6 per cent in June to 14.6 per cent now, having bought the last 1 per cent from Axa New Zealand during the notice and pause period of TEC's bid.

The additional shareholding had been acquired as part of a long-term goal to own 15 per cent, a level Mr Kirk-Burnnand said would give the trust absolute control when it came to related party transactions.