NGC board endorses value of Vector bid

NGC, New Zealand's biggest gas distributor, is recommending its shareholders accept a $482 million takeover offer from Vector, the company majority owner.

Vector, New Zealand's biggest electricity distributor, is offering $3.40 in cash and Vector stock for each NGC share. NGC shares have gained 14 per cent since Auckland-based Vector announced its offer details on June 27.

"NGC's independent directors consider the face value amount of $3.40 to be of limited relevance," the company said in a statement to the New Zealand stock exchange yesterday.

"Of primary importance is the realisable value of Vector shares upon listing."

Vector plans to sell $593 million of shares next month to help fund its purchase of NGC. Vector bought 67 per cent of NGC last year from Australian Gas Light for $863 million.

The enlarged Vector business runs power, gas and phone lines in Auckland and power and phone lines in Wellington.

With $5 billion of assets and forecast sales of $1.2 billion, Vector will be among the top 20 stocks in the benchmark NZX 50 index.

The share sale will make Vector one of few "reasonably-sized defensive stocks," NGC said. As such the stock is likely to be strongly sought by institutional investors.

NGC assessed the merger benefits for Vector at between $6 million to $13 million a year, valuing NGC stock at $2.74 to $3.05 a share.

The Vector takeover offer for the remaining 33 per cent of NGC it does not already own has now opened, with shareholders having four weeks to decide whether to accept.

As a demonstration of the premium being put on Vector shares in its upcoming IPO, NGC traded yesterday at just under $4 each or nearly 60c above the takeover price. They finished the day at $3.99.

A previous takeover attempt made last year, when Vector bought two thirds of the company from Australian Gas Light, was pitched below the prevailing market price, so attracted little interest.

The full takeover offer was posted to remaining NGC shareholders yesterday.

These shareholders - many of whom are thought to have bought into the company as a way of getting scarce Vector shares - are being offered 78c in cash, with the rest of the money paid by way of new Vector stock.

Vector hopes to fully merge the two companies, giving it an integrated energy network business that includes powerlines in Auckland and Wellington and gas transmission and distribution across much of the North Island.

NGC also provides meters to more than 860,000 electricity customers and about 58,000 gas customers in New Zealand.

* The closing date for the NGC takeover is August 10.

- BLOOMBERG and staff reporter