Prime sale blamed for Powerco shares exodus

By CHRIS DANIELS

Prime Infrastructure's sale of Powerco shares may have triggered the overseas exodus of millions of shares in the takeover target, stock exchange trading figures suggest.

Shares heading offshore - where owners enjoy better treatment than those based in New Zealand - have created a nightmare for the Australian company, as it tries to close the $680 million deal.

But the torrent of Powerco shares heading overseas did not begin until the day Prime announced it had sold a 1 per cent stake in the company: a stake it bought in apparent breach of the Takeovers Code.

This happened on September 21. The day before, only 475,803 shares were traded. On September 22, this flew to 11.4 million, then 13.4 million.

The Takeovers Panel is meeting next week to decide if a later deal signed between the New Plymouth District Council and two community trusts may have breached the code.

Prime Infrastructure is offering $2.15 a share for the New Plymouth-based powerlines and gas company, but paying in a mixture of cash and bonds. Powerco closed down 1c at $2.11 yesterday, with 5.8 million shares traded.

Sale organiser PricewaterhouseCoopers this week struck a face-saving deal with the council and trusts that means they would not be left holding too many bonds after selling to Prime.

The council and trusts even moved their shareholding address to Australia, then moved it back again once the deal was done.

Prime said yesterday it was confident it had at all times acted in accordance with the code.

"Prime Infrastructure is neither a party to nor otherwise involved in any arrangements that the three majority shareholders in Powerco may have made in relation to how they intend to deal with their consideration under the offer."

It would not be making any more comment on the deal. The arrangement that had attracted the ire of the panel was "solely between the majority shareholders and any other parties to such arrangements".

A corporate partner at law firm Phillips Fox, Mike Brooker, said the code was based very much on principles, rather than "black letter law".

The panel would look to ensure the principles were upheld. It did not like schemes devised to circumvent the purpose and intent of the code.

Without being familiar with all the terms of the council's deal, if it legitimately stood outside the actual takeover, then it would be "at the margins".

ASB Securities managing director Tim Preston said he did not think Prime's sale of its 1 per cent holding had triggered the flood of Powerco shares offshore. Several overseas-based investors had already approached ASB after the initial panel waiver was given.

These companies "trawled the globe" looking for such arbitrage opportunities.

Preston did not agree with recent criticism of the panel's role in the deal. Its decision was consistent with previous ones and the code was still developing, he said.

Before the panel even made its decision to allow the waiver for overseas shareholders to be paid in cash, arbitrage specialists were watching the takeover closely.

A Prime spokeswoman said Powerco shareholders should get the takeover offer in the mail over the next few days. Powerco would post out its "target company statement" around October 18.