Takeovers Panel dithers amid Powerco fiasco

By Duncan Bridgeman

Friday 1st October 2004

Despite turning Prime Infrastructure's $780 million bid for Powerco into a fiasco it appears the Takeovers Panel policy on takeover bids and overseas shareholders will remain unchanged.

Chairman John King said the Panel would address the issue next time it received an application for an exemption and would likely deal with it on a case-by-case basis.

"How we actually do that I haven't got the answer yet but we are going to apply our mind to it."

The Panel's ruling, which allowed overseas Powerco shareholders to receive cash only instead of a mixture of bonds and cash, saw foreign investors go on a spending spree as their kiwi counterparts raced to offload their shares for cash.

The Takeovers Code requires equal terms and conditions for all shareholders but Prime asked for an exemption because only 0.3% of Powerco shares were foreign owned.

Now the acid is back on Prime, which faces paying millions more in cash for Powerco than it initially intended, and millions less in junk bonds.

The issue is complicated by Powerco's three biggest shareholders who claim they have a legal right to be paid in cash for no less than 62.5% of their shares

But Prime's takeover documents say New Zealand shareholders could be subject to scaling depending how much cash is paid to overseas holders.

If the three main shareholders New Plymouth District Council, the Taranaki Electricity Trust and Powerco Wanganui Trust still get cash for 62.5% of their shares, Prime could end up paying out up to $118 million more cash than it had intended.

This would only apply if all Powerco's New Zealand shareholders took the opportunity to sell their shares to offshore institutions.

So far more than 30% of Powerco's remaining shares have changed hands since the takeover offer was announced.

Interestingly, Prime's share price has been steadily rising in the last few days indicating investors think Prime has the ability to come up with extra cash and will end up with 100% of Powerco at a good price.

Prime chief executive Chris Chapman was unavailable for comment yesterday morning despite arriving in the country on Wednesday night.

He has been optimistic in his comments to media during the week saying he thought many New Zealand shareholders would ask to be paid 100% in bonds.

However an imminent Grant Samuel appraisal report is expected to support a no recommendation from Powerco's independent directors with regard to the fairness of the offer.

Not that the overseas arbitrageurs who snapped up shares at a 4c premium will care. They are likely to accept the takeover offer anyway.

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