Vector's $9.90 offer for UnitedNetworks 'fair'

By CHRIS DANIELS

UnitedNetworks shareholders have been advised to accept Vector's $9.90 a share takeover offer.

Independent directors and valuation firm Grant Samuel have recommended the deal, which would make Vector the largest monopoly lines company in New Zealand.

Currently publicly owned, the trust that controls Vector is planning to float 25 per cent of the newly merged company.

Vector is already in the market for UnitedNetwork shares, announcing to the Stock Exchange on Friday that it had bought 2.66 per cent of the company at prices ranging from $9.82 to $9.84.

US energy giant Aquila, which owns 70 per cent of UnitedNetworks, has already accepted the Vector offer, and is waiting for approval from its banks before the sale of its shares is finalised.

Vector chairman Michael Stiassny said yesterday that most shareholders should receive the pack containing the offer, the UnitedNetworks response and the independent directors' recommendation by the end of this week.

Once Aquila gets its banking consents, the offer will become unconditional, and shareholders who have accepted the Vector offer will be paid within seven days. The takeover offer is due to close on October 23.

The Grant Samuel report says the Vector offer represents a premium of 29 per cent to the closing UnitedNetworks share price on June 11, the day before it was announced the company would be sold.

It was also a 23 per cent premium to the weighted average sale price in the three months before that announcement of $8.08 per share.

The true underlying value, as assessed by Grant Samuel, was between $9.02 and $10.48 a share.

It warned UnitedNetworks shareholders that because the Vector offer was conditional on it getting 70.2 per cent of the company, shareholders could miss out on getting a good price for their shares.

Vector could slowly buy up shares on the market over the next few years before getting to the 90 per cent level that allowed it to compulsorily acquire the remaining 10 per cent.

Because UnitedNetworks went through a sales process, a shortlist was drawn up and due diligence conducted before final offers went in, it was "highly likely that the offer represents the maximum price able to be achieved for UnitedNetworks in the current economic and market conditions and regulatory environment", said Grant Samuel.

"The sales process results in a high level of confidence that the Vector offer price of $9.90 per share is fair."

The Auckland Energy Consumer Trust yesterday said a new deed had been signed with Vector.

It would guarantee existing spending of an average of $10 million a year on putting powerlines underground, a pricing policy for small customers that would freeze price increases at the level of inflation and a "target dividend ratio" to shareholders of 85 per cent of annual net profit after tax.

Consumers connected to the Vector network in Auckland City, Manukau City and Papakura would get a 25 per cent smaller cut of the profits when the company was floated.

But trust members said the total dividend would be much higher once UnitedNetworks was swallowed up by Vector, more than compensating for the adjustment.

While the $1.5 billion price tag can be covered by bank loans, Vector says it must bring in private equity to avoid credit-rating downgrades and pressure on its balance sheet.

Nearly $1 billion of the purchase price of UnitedNetworks will be recovered by Vector through the sale of the non-Auckland gas network to New Plymouth-based Powerco for $220 million and the sale of the power lines business in southern and eastern Waikato, the Thames Valley and Coromandel, Tauranga and Hawkes Bay for $785 million.

* Vector has a free-phone information number for shareholders to call from Friday: 0800-739-739.