NGC price a caution for Vector

NGC shareholders have been warned that the present high share price may cause Vector to make only a partial takeover offer for the company.

Vector, as part of a 24.9 per cent privatisation and $600 million share float, is expected to make a takeover offer for the 33 per cent of NGC it does not own.

Money raised in the initial public offering (IPO) will be used to pay down debt incurred last year when Vector bought 66 per cent of NGC.

The Auckland-based energy network company is also offering preference rights in the IPO to its bondholders and its income beneficiaries, anyone with a power account in Auckland City, Manukau City and most of Papakura.

Last year, valuers Grant Samuel said the underlying value of NGC shares was in the range of $2.50 to $2.76. The shares are now trading around $3.40 each.

Macquarie research predicts a 12 per cent premium for Vector shares upon listing.

It believes Vector is likely to offer about $3.18 for each NGC share, paying half in cash and half in its own shares. With the premium added, this would take its value up to around the $3.40 mark.

In a research note published yesterday, CS First Boston also raised the possibility that Vector would only make a partial takeover - happy to get less than the 90 per cent ownership necessary to take complete ownership.

This would avoid it paying too much for the remaining 33 per cent of shares.

A Dow Jones poll of local institutional investors yesterday showed a mixed attitude to the Vector IPO.

Andrew Bascand, at Alliance Capital Management, said it would be of little interest to him because other better growth opportunities - such as Fisher & Paykel Healthcare and Contact Energy - abounded.

He said the local regulatory structure and risks of further regulation made Vector a less attractive proposition.

Stephen Walker, head of equities at Walker Asset Management, said that "for most institutions it's not something they need to own. If it's at the right price we will buy, otherwise we won't."

However, First NZ Capital research director Barry Lindsay says "there is appetite for lower risk utility companies" and believed the IPO should "go very well".

UBS institutional dealer Campbell Stuart agreed. "I think everyone will have a genuine interest and demand from institutional investors will be strong."

The Vector offer

* Income beneficiaries have until 5pm tomorrow to pre-register interest in the Vector IPO.

* Bondholders have until June 22.

* If bondholders miss this date, their priority entitlement will lapse.

* Vector's prospectus for its IPO is expected by the end of this month.

* It is expected to also mount a takeover offer for the 33 per cent of NGC it does not own.