Powerco in talks with NGC

By PAUL PANCKHURST and CHRIS DANIELS

Two power distribution companies with a joint market capitalisation of nearly $1.8 billion are considering a merger.

NGC and Powerco are several weeks into their investigation, and investment bank Macquarie is among the advisers.

But a deal is far from certain. It has been described to the Business Herald as being at the "conceptual" stage.

Wellington's NGC has a market capitalisation of $1.15 billion and operates in the North and South Islands.

It is big in gas transmission and distribution in the North Island, and is also involved in gas processing and wholesaling, electricity metering and LPG distribution and sales.

New Plymouth's Powerco has expanded aggressively and has a market capitalisation of $626 million.

It calls itself New Zealand's largest gas distributor and second-largest electricity lines company, supplying power to the central and lower North Island.

NGC is 20th and Powerco 21st in the NZSX50 index of the top 50 listed companies.

Both distribute gas through pipe networks - offering opportunities for cost savings.


One market source said the idea of a merger had been "floating around for at least 18 months".

The work on the idea comes amid market speculation over whether NGC's two-thirds owner, Australian energy giant AGL, will sell its interest in the company.

AGL has also been named as a potential buyer of a 51 per cent shareholding in top-10 stock Contact Energy - one of an array of international assets put on the block by US power giant Edison Mission.

Another factor in the mix is the local power distribution company Vector, owned by the Auckland Energy Consumers' Trust.

A briefing by the expansionist company last month to analysts and bankers sparked speculation that it was thinking of a share float.

Powerco or NGC assets could also fit with Vector assets.

NGC transformed its business after floundering during the 2001 power crisis.

It sold electricity generating and retail assets to concentrate on gas processing, wholesaling, transmission and distribution.

It owns and operates more than 3400km of high-pressure gas pipeline in the North Island, and more than 2600km of intermediate-, medium- and low-pressure pipeline.

LPG sales are its only retailing, but a growth area is energy metering technology for electricity and gas.

NGC owns about 55,000 gas meters. It also owns electricity meters and related equipment at 800,000 homes and businesses - or about 45 per cent of the total market.

Powerco is one of the most aggressive of the 28 electricity lines companies, and has grown dramatically in the past 10 years.

The company says its central North Island network has about 400,000 customers.

Its most recent expansion was into Tasmania, where it won a contract to build a gas pipeline network.

The New Plymouth District Council owns 38.16 per cent of Powerco. Just under 12 per cent is owned by the Taranaki Electricity Trust and nearly 4 per cent by the Powerco Community Trust.

Another 19,000 shareholders own the rest.

The players

* POWERCO

NZ's largest gas distribution company and second-largest electricity lines company. (Vector is the biggest).

Headquarters: New Plymouth.

NZX listed.

Owned by: New Plymouth District Council 38.1pc, Taranaki Electricity Trust 11.7pc, Powerco Community Trust 3.69pc, public 46.36pc.

2003 results: revenue $229.3m, net profit $38.1m.

* NGC

Gas distributor with 6000km network in North Island. Natural gas and LPG processor and wholesaler.

Headquarters: Wellington

NZX listed

Owned by: AGL 66pc, public 33.95pc.

2003 results: revenue $472.2m, net profit $67.1m.