Analysts cheer NGC bid for TransAlta

By FIONA ROTHERHAM

Canada's TransAlta is being offered a get-out-of-New Zealand card by Australian Gas Light, set to become the country's dominant energy retailer.

Australian Gas Light, through its 71 per cent owned subsidiary Natural Gas Corporation, is negotiating to buy TransAlta Corporation's 75.8 per cent stake in TransAlta New Zealand.

"If you want a one-liner, we've got the gas and they have the electricity, " said NGC chief executive Richard Bentley.

If successful, the takeover bid would make NGC, 71.6 per cent owned by AGL, the country's largest electricity retailer.

The transaction would be subject to Commerce Commission and Overseas Investment Commission consents, as well as the approval of Natural Gas shareholders. Mr Bentley says NGC hopes to have the deal completed by the end of March.

The move will come as a blow to baby ECNZ Meridian Energy, which, according to media speculation, last year tried and failed to buy TransAlta.

NGC's bid follows weeks of negotiation and is thus likely to be greeted more warmly.

Analysts say it would give Canada's TransAlta Corp an honourable exit from New Zealand at a fair price. TransAlta has been a big critic of the previous Government's electricity reforms and the trend worldwide is for a more domestic focus by the big US utilities. TransAlta last year tried to buy out the local interests in TransAlta New Zealand but was thwarted by the Hutt Mana Energy Trust.

NGC said yesterday it was considering paying between 260c and 310c for each ordinary share held by TransAlta subsidiaries TEC Investments and TransNewZealand Energy. The offer would not cover shares held in TransAlta by the public or by the Hutt Mana Energy Trust, which controls 14.8 per cent of the company.

Any sale would also include the purchase of TEC's capital notes for between 100c and 120c each, and the $217.2 million project debt that TEC Investments was owed by TransAlta NZ for funding the Taranaki Combined Cycle power station at Stratford.

All-up, such a deal could cost NGC between $785.8 million and $895.8 million - to be paid for by a combination of a pro-rata rights issue and debt Hutt Mana Energy Trust chairman Chris Kirk-Burnnand said the offer price vindicated the trust last year stymying TransAlta's attempted 100 per cent buyout of its NZ affiliate.

The Canadian company was able to increase its stake from 68 per cent to 75.8 per cent but failed to convince the trust or its shareholders to accept its 230c to 250c offer.

Mr Kirk-Burnnand said the trust wanted to remain a long-term investor.

Under local stock market notice and pause rules, NGC has three days to make a formal bid.

TEC General manager Mark Manderson said any formal offer received after that period would be considered. A further announcement in relation to the notice was to be made by TransAlta Corporation from Calgary on Monday (early Tuesday morning NZ time).

Standard & Poor's placed its A long-term and A2 short-term credit ratings on TransAlta New Zealand on creditwatch with developing implications following the bid.

In mid-1998 NGC signalled a move into electricity was part of its strategy to expand its business aggressively.

In March last year it acquired the electricity retailing business of Hamilton-based WEL Energy. NGC currently supplies about 136,000 energy customers (69,000 with electricity and 67,000 with gas) compared with TransAlta's 535,000 customers.

Deutsche Securities analyst Kevin O'Connor said the deal made sense for NGC and AGL.

"Natural Gas is long on gas, TransAlta is long on customers. So there are synergies and economies of scale and it is a full and fair price.

"Don't forget that gas is the marginal source of electricity generation, so I think this adds value to NGC's gas contracts," Mr O'Connor said.

Further synergies could be gained by AGL in time if it were able to combine the assets of NGC, TransAlta NZ and Tauranga-based energy provider TrustPower.