Transpacific offer fair - but a takeover

An independent report on the proposed merger of Waste Management and Transpacific Industries says it is fair, but calls the deal a takeover.

Under the so-called merger proposal, Transpacific is offering Waste Management shareholders $8.642 a share, which is the agreed price of $8.80 less a recent dividend of 15.8c a share.

In its report, Grant Samuel said the offer of $8.642 was above the assessed value range of $7.24 to $8.21 a share and was considered fair.

The proposed deal has been criticised as a takeover by Transpacific rather than a genuine merger.

In its report, Grant Samuel appears to echo that view, referring to the deal as a takeover.

"The premium for control is consistent with the premiums for control observed in other successful takeovers of other listed companies in New Zealand and Australia," the report said.

It added that the $8.80 price was a 25 per cent premium to the closing share price of $6.99 on March 24 - the day before the merger announcement - and a premium of 32 per cent to the volume weighted average price of $6.66 for the previous month.

However, it was reasonably uncommon for offer prices to exceed the assessed valuation range, Grant Samuel said, referring to Transpacific as "the acquiror".

"In such instances the acquiror is willing to share the perceived synergy benefits with the vendors for strategic reasons and more commonly to ensure the transaction proceeds. This would appear to be the case with the proposed transaction," the report said.

Waste Management chairman Jim Syme said the board had always been confident that the offer was in excess of the full value of the business.

"The board of Waste Management reaffirms its unanimous recommendation that shareholders vote in favour of the proposed amalgamation."

Only a summary of the Grant Samuel report was released yesterday and Carmel Fisher, managing director of Fisher Funds Management, said the lack of detail made it hard to decide whether to accept the Transpacific offer.

Shareholders should receive a full copy of the independent appraisal next week before a meeting on May 17 where the merger will be voted on.

"It's really going to depend on what Grant Samuel's assumptions have been in deriving that value," Fisher said.

Until the detailed report could be examined, it was not possible to say if the offer fully reflected the synergy and growth opportunities.

"For us it's not about whether the price represents a premium to the average traded price in the market," Fisher said. "It's almost irrelevant because we're potentially going to lose this company from the market and we want to make sure that we are getting paid for the opportunities that we're going to be forgoing."

Transpacific executive chairman Terry Peabody said the report confirmed the company's view that the offer price was fair.

"We put a lot of the synergies back that we were able to put together. That was something that we were trying to tell people but we probably weren't getting the message through as well as we could have."

He said Transpacific had also applied to list the merged company on the NZX, giving Waste Management shareholders the opportunity to reinvest in a stronger combined business.

This opportunity was, however, likely to get a cold response at Fisher Funds.

"That doesn't excite us hugely," Fisher said. "It will still be an Australian company whether it's listed here or not and we just prefer to invest in New Zealand companies."

The board of Waste Management has also decided to pay a fully imputed special dividend of 54c a share, subject to approval of the merger.

This dividend would ensure shareholders get the benefit of all existing imputation credits and would be included in the amalgamation payment of $8.642 a share.

The Offer

* Transpacific is offering $8.64 for each Waste Management share.

* Structured as a merger requiring 75 per cent shareholder approval.

* Independent appraisal says proposal is fair.

* Shareholder meeting planned for next month.