Small player shows where power lies

By BRIAN GAYNOR

The Hutt Mana Energy Trust, formerly known as the EnergyDirect Community Trust, is a remarkable organisation in the context of the New Zealand sharemarket.

It is a relatively small shareholder in the Hutt-based TransAlta New Zealand, yet it has managed to have a huge influence over the group's destiny.

In the past six years it has effectively vetoed the acquisition of TransAlta by Power New Zealand, given the go-ahead for a merger with Wellington's Capital Power and frustrated the takeover bid by Canadian group TransAlta Corporation.

It will now determine whether the takeover offer from Natural Gas Corporation will proceed.

In 1993, as part of the first stage of the electricity industry reforms, all existing energy utilities were corporatised. The original owners of these new companies were the local council(s), a community trust, consumers (through a free distribution of shares) or some combination thereof.

In the Wellington area two new companies were established: EnergyDirect, which supplied electricity and gas to the Hutt, Mana and Porirua area and was originally owned by consumers (60 per cent), the EnergyDirect Community Trust (30 per cent) and four local city councils (10 per cent); and Capital Power, which served central Wellington and was 100 per cent owned by the Wellington City Council.

In October 1993, EnergyDirect, now known as TransAlta New Zealand, was listed on the Stock Exchange with 83,000 shareholders.

EnergyDirect's share ownership changed significantly during its first year of listing, with Enerco NZ (19.7 per cent) and Power NZ (18.3 per cent) buying substantial holdings.

In October 1994, EnergyDirect announced it would merge with the Takapuna-based Power New Zealand. Enerco opposed the merger and in November sold its shareholding to the Canadian energy group TransAlta Corporation.

One month later, the influence of the EnergyDirect Community Trust became apparent when the merger with Power NZ was cancelled because the trust would not support a motion that would facilitate the amalgamation.

At that stage the trust owned 19.9 per cent of EnergyDirect.

In 1995, attempts were made to resurrect the merger but the hostile battle for control of Power New Zealand disrupted the North Shore company. In September 1995, Power NZ decided to quit EnergyDirect and sold its shareholding to TransAlta Corporation.

In 1994, TransAlta Corporation bought a 49 per cent interest in Capital Power from the Wellington City Council.

In October 1995, the directors of EnergyDirect resolved that a merger between the company and Capital Power would be in the best interest of shareholders. At the time the Hutt-based and Wellington-based companies had 83,600 and 53,000 customers respectively.

A widespread consultation process began in March 1996. During this deliberation the Canadian group bought the remaining 51 per cent of Capital Power.

With the support of TransAlta Corporation and the EnergyDirect Community Trust the merger between EnergyDirect and Capital Power was approved in September 1996. After the merger the listed company changed its name to TransAlta New Zealand.

The company's shareholding structure after the amalgamation was TransAlta Corporation (62.7 per cent), EnergyDirect Community Trust (13.9 per cent) and 28,100 small shareholders who held the remaining 23.4 per cent.

The influence of the Canadian company was felt almost immediately. In June 1997, Gary Holden, a TransAlta Corporation executive, replaced Mike Underhill as chief executive.

In 1998, under the next stage of the electricity reforms, energy companies were forced to choose either retailing or line/network activities as their main operation.

TransAlta decided to concentrate on retailing and as part of the reforms it bought and sold the following assets: the electricity lines were sold to UnitedNetworks (previously Power NZ) for $580 million; the Wellington gas network was sold to the Australian Gas Light Company (AGL) for $111 million; the retail energy business of the North Shore-based UnitedNetworks was bought for $145 million; and the retail energy business of Christchurch-based Orion NZ (formerly Southdown) was bought for $169 million.

The net impact of these transactions was a cash injection of $378 million and the Hutt company now had 541,000 electricity and 26,000 gas customers.

TransAlta had become the country's largest electricity retailer with its main customer base in Christchurch, the Wellington-Hutt area and on Auckland's North Shore.

Another shareholding scuffle began in August 1999 when its controlling Canadian shareholder made a takeover offer for TransAlta at $2.50 cash a share. Grant Samuel valued the company at between $1.95 and $2.52 a share and the independent directors recommended acceptance.

But the offer was conditional on 90 per cent acceptance and the EnergyDirect Community Trust, now called the Hutt Mana Energy Trust, was a 12.5 per cent shareholder.

Once again the trust had a big influence on the outcome of the offer. It refused to accept the cash bid and in frustration the Canadian group sold its 75.8 per cent shareholding to Natural Gas Corporation (NGC) for $2.80 a share.

The latest bid for TransAlta was initiated on August 2 when NGC offered either $2.79 cash or 1.86 NGC shares for every one TransAlta share. The offer will not proceed unless Hutt Mana Energy Trust first accepts the offer.

The trust owns 14.6 per cent of TransAlta and NGC 75.8 per cent. The remaining 9.6 per cent is held by 16,100 small shareholders.

Grant Samuel has valued TransAlta shares at between $2.29 and $2.60 and has declared the offer fair. The independent directors will respond at the end of the month when Hutt Mana Energy Trust has made its decision.

The trust has called for written submissions, which close on Monday. It will listen to oral submissions the following Monday and Tuesday and decide after that.

The trustees have voted four-to-one in favour of the acquisition but this was a preliminary decision that may be reversed after the submissions are heard.

However it turns out, Hutt Mana Energy Trust will continue to have a big influence over TransAlta. If the trust rejects the offer, TransAlta will remain a stand-alone company which cannot be taken over unless the trust approves.

If the trust accepts the offer, NGC will hold 90.4 per cent and will move to compulsory acquisition. The trust will end up owning between 9.6 and 10.2 per cent of the enlarged NGC group and the Australian Gas Light Company (AGL) will continue to be NGC's controlling shareholder with 61 per cent.

More importantly, the trust has negotiated several agreements with NGC and AGL. These include regular meetings with NGC to review its financial and operational performance and to discuss its plans.

The Hutt Mana Energy Trust, which is expected to accept the script offer, has been a strong and effective shareholder and has had a significant influence over the control of TransAlta. This is a remarkable achievement in a country where minority shareholders usually play second fiddle to the big boys.