Snag for $680m Powerco deal

By CHRIS DANIELS

An Australian company's $680 million cash-and-bonds takeover bid for Powerco is up against a campaign to persuade small shareholders to say "no".

Powerco is the listed New Plymouth gas and powerlines company.

Last month, Prime Infrastructure agreed to buy a 53.6 per cent stake in the company from the New Plymouth District Council and two community trusts for $2.15 a share.

Under the Takeovers Code, it will offer all shareholders the same deal.

Prime wants to obtain the 90 per cent ownership that leads to a full takeover and a delisting.

New Plymouth accountant Kevin Landrigan is leading opposition, saying the council had no mandate to sell, did not consult properly and, on top of all that, got a bad price.

Speaking for the Concerned Ratepayers local lobby group, Landrigan said the council had sold the "money tree" and thousands of local smaller shareholders should not be taken in in the same way.


Opponents are lobbying politicians and the Overseas Investment Commission to reject the sale because of the land being sold, rather than the shares.

The commission's approval of the sale is likely to be a formality.

Landrigan said Powerco owned a lot of land in the region.

He was also concerned that Prime's high debt levels would lead to Powerco being "milked for its cash" and a subsequent under-investment in its infrastructure.

He said thousands of small local Powerco shareholders would be rejecting the Prime deal, since the shares were such a good investment and had provided good returns - returns better than the bonds being offered by Prime.

Prime chief executive Chris Chapman said: "We have to communicate to all shareholders the benefits of the offer, and that's what we'll be doing."

Offer documents are expected to be posted to all Powerco shareholders at the end of this month.

Business Herald commentator Brian Gaynor said the debt securities being offered as part-payment by Prime "make our existing junk bonds look like prime securities".

The indicative 8.5 per cent interest rate being offered was "far too low for an extremely high-risk security".

The bonds are not rated by any credit agency, are unsecured and subordinate, and have no fixed redemption or conversion rate.

All shareholders will be offered the same deal, but can choose to be paid in cash, converting securities or a 62.5 per cent cash and 37.5 per cent securities mix.

If everyone asks for cash, there will be some scaling.

Powerco shares closed yesterday at $2.05.