Powerco waiver bites Prime

By CHRIS DANIELS


Prime Infrastructure is facing a bill that could reach tens of millions of dollars after a Takeovers Panel ruling on its $680 million bid for Powerco had unexpected consequences.

The panel said yesterday its ruling, which allowed overseas Powerco shareholders to take cash only, instead of a mix of bonds and cash, had unforeseen consequences.

Overseas investors are now piling into Powerco shares, taking advantage of being able to be paid in cash, not the unrated, unsecured bonds that Prime hoped would pay for 37.5 per cent of the takeover.

The panel - and Prime since it asked for the waiver - expected only a tiny number of foreign shareholders would take advantage of the cash-only deal.

If all the Powerco shares go overseas, Prime will not be able to use its own bonds as payment and will have to pay all the money in cash.

Powerco shares were the stock exchange's most traded yesterday, 10,973,668 shares worth $23.1 million changing hands.

The price was unchanged at $2.11 each, 4c a share below what Prime Infrastructure is offering.

Nearly 60 million Powerco shares - 19 per cent of the company's stock, according to Reuters figures - have been traded during the past six sessions as local shareholders sell.

One institutional investor described the situation as an "absolute cock-up".


A takeovers expert said that the panel may have "got it wrong" in granting the waiver, as it gave Powerco's overseas shareholders a clear advantage.


Prime's problems may compound, if the rest of Powerco's New Zealand shareholders try to sell their shares to overseas buyers, so they too can get cash.

But Prime chief executive Chris Chapman played down the risk of Powerco shares all heading overseas.

"It's business as usual," he said.

He felt that the number of New Zealand shareholders selling out had "reached a natural point" and would now stabilise.

He said the company had a lot of faith and confidence in the quality of its bonds.

The panel said yesterday it accepted the situation was an "unforeseen implication" and it would not allow it to happen again.

It said the exemption was granted as part of its general policy regarding scrip offers and overseas shareholders.

The cost of complying with overseas securities laws meant it was not always practicable to make a scrip offer on the same terms to all shareholders.

"This type of exemption is typically granted where the number of overseas shareholders is minimal. Overseas shareholders held 0.3194 per cent of Powerco shares at the time of the exemption."

Since it was granted, on September 9, it had been exploited by those "with addresses in Australia" buying Powerco shares.

" As a result the number of shareholders who can obtain the benefit of the exemption far exceeds the number originally advised to the panel," it said.

"Because the offer contains a cap on the amount of cash to be made available in aggregate to all shareholders accepting the offer, such acquisitions may reduce the cash consideration available to remaining shareholders.

"In future, the panel will structure exemptions of this type to prevent their exploitation."

Small shareholders will have no problems, though, as they are being paid in cash.

About 25 per cent of Powerco shareholders fall into this category, owning stakes worth less than $1000.