By NZPA
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Monday 23rd December 2002 |
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In a separate deal, it conditionally agreed to sell the Cobb Power station in the Tasman Mountains northwest of Nelson to TrustPower for $92.5 million.
TCC is a four year-old, 357Mw plant situated near Stratford and will complement Contact's existing thermal generation plants at Otahuhu-B (380Mw), Otahuhu-A (40Mw), New Plymouth (400Mw), and Te Rapa (44Mw). Contact also has geothermal and hydro power stations capable of producing a total of 996Mw.
Contact's purchase price includes repaying the debt on the plant and the associated forward electricity sale contracts (hedges).
The acquisition is conditional on Contact gaining a clearance from competition watchdog the Commerce Commission.
Contact lodged an application for clearance with the commission in November, and a decision is expected early in the new year.
Contact had also lodged an application to purchase the Cobb station.
The agreement is also conditional on NGC shareholder approval and the termination of a cross border leveraged lease.
NGC's majority shareholder, the Australian Gas Light Company, has indicated it intends to support the sale to Contact.
Subject to the satisfaction of these conditions, settlement date for the transaction is expected to be February 2003.
Contact expects a number of important strategic benefits from the purchase. It would broaden Contact's generation base and allow it to pursue further growth in the downstream electricity business, especially in the sale of contracts to large customers and to the mass retail market, chairman Phil Pryke said.
He said Contact had been a major contributor in creating a competitive retail electricity market, achieving 50 percent growth in retail customer sales volume in the last three years.
"More recently, we have put priority on identifying mechanisms to expand our generation capacity, to underpin and enhance our capacity to remain a strong retail competitor", Mr Pryke said.
"This acquisition is key to our achieving this and underlines Contact's commitment to and confidence in the New Zealand energy sector."
He said that unlike some of its competitors, such as Meridian, Contact did not have a sizeable `greenfield' generation development that could be developed in the near term.
The station achieved earnings before interest, tax and depreciation (ebitda) of $58.2 million in the year to June 30. The purchase price represents a multiple to this historical ebitda of 8.6 times.
Contact expected the integration of TCC within its generation portfolio to yield significant efficiencies over time, and be a major contributor to net earnings in future.
Because of planned maintenance outage in April and the fact that Contact will only have owned the plant for eight months at next balance date, the purchase will marginally dilute net earnings for the current financial year.
"The TCC station uses a combined cycle gas turbine to achieve a very high level of energy efficiency. The station also has a dedicated fuel contract backed by Shell, which provides a very high degree of fuel supply assurance until 2010," Contact chief executive Stephen Barrett said.
"We see this aspect of the deal as especially important, given the increased uncertainty of supply from the Maui field."
Contact had no plans to change the size of the workforces of TCC or any Contact generation plant as a result of the acquisition, Mr Barrett said.
"Indeed, Contact sees an enhanced role for its New Plymouth plant as it would be able to act as an integrated back-up not only to Otahuhu-B, but also to TCC,' Barrett said.
Contact had bridging financing for the purchase and it did not intend to issue equity to complete the purchase.
The Cobb station has an output capacity of 32Mw.
TrustPower chairman Harold Titter said TrustPower supplied a significant number of retail electricity customers in the Marlborough, Nelson and West Coast areas, and the addition of Cobb to its other hydro assets in those areas would further reduce the necessity for TrustPower to buy electricity from outside the region.
NGC sold the plants following its failed foray into the retail electricity sector two years ago.
State-owned companies Meridian and Mighty River Power both expressed interest in the generation assets. Meridian was interested in the Stratford plant and NGC's Southdown to balance its portfolio of all hydro generation assets.
TrustPower shares closed at $3.40 on Friday but were untraded today. Contact shares rose three cents to $3.88 in early trading.
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