Vector, Powerco, Hawke's Bay Network to carve up UnitedNetworks

By NZPA

Tuesday 10th September 2002

Auckland lines company Vector, the country's second biggest lines company, is to make a full takeover for New Zealand's biggest energy distributor, UnitedNetworks, at $9.90 per share, valuing the company at $1.5 billion.

But UnitedNetworks, currently a top 10 listed company, is to be carved up as part of the deal with New Plymouth-based Powerco and Hawke's Bay Networks buying UnitedNetwork's Eastern Region electricity network for $785 million.

As well, Powerco will buy the Central North Island gas networks for $220 million.

Powerco said it would raise up to $150 million in equity to help fund the $810 million purchase of UnitedNetwork assets.

"The acquisition will cost Powerco $810 million, plus transaction and integration costs, to be funded by a combination of debt and equity," said Powerco chairman Barry Upson.

"The maximum equity amount to be raised is $150 million, which has been fully underwritten by Macquarie. "

Powerco shares fell 5 cents to $1.80 while UnitedNetwork's shares, one of the best performing stocks on the market in the last year, continued to power ahead. They rose to a record high of $9.65 but then eased back to $9.55, up 5 cents on yesterday's close.

UnitedNetwork's share price has risen over 25 percent since June 10 as buyers speculated a strong takeover price would be offered when 70.2 percent owner Aquila Inc of the United States said it was quitting the company because of debt problems on the home front.

UnitedNetworks, which has assets of $2.3 billion, said its board was recommending to shareholders they accept the Vector offer.

Vector, formally Mercury Energy, is owned by the Auckland Energy Consumer Trust.

UnitedNetworks said its decision to recommend the bid was the culmination of a competitive bidding process conducted by the company to sell all of the shares or assets to one or more successful bidders.

UnitedNetworks's independent director Mike Smith said Vector's price was assessed as "fair and reasonable and in the best interests of all shareholders".

Aquila has agreed to accept the Vector offer for its 70.2 percent stake and has said it would not talk to third parties for 150 days, effectively closing the door on an alternative offer surpassing Vector's.

Vector has agreed to bid for all UnitedNetworks shares within 30 days, subject only to its agreement with Aquila becoming unconditional.

Vector's purchase of the Aquila stake is conditional on Vector receiving bank consents within 28 days from today and getting Commerce Commission approval, which it has already applied for.

UnitedNetworks is twice the size of Vector as measured by assets and revenue but will be considerably reduced when all the divestments are completed. UnitedNetworks' revenue was $455 million in 2001.

Analysts said Vector was a natural buyer of the neighbouring electricity network on the North Shore and the Waitemata area, owned by UnitedNetworks.

As Vector is trust-owned and not listed, it did not have access to the capital market to raise equity to help fund a purchase.

The simultaneous asset sales would require UnitedNetworks shareholder approval and Powerco shareholder approval.

UnitedNetworks distributes electricity to around 30 percent of the country's electricity consumers, gas to over 50 percent of gas consumers and owns and manages broadband fibre optic networks in the Auckland and Wellington CBDs.

Powerco's acquisition would double the size of its network with gross assets around $1.7 billion, resulting in Powerco becoming New Zealand's largest gas distribution company and second largest electricity distribution company with 391,000 consumer connections, the company said.

Westpac, ANZ and BNZ banks have underwritten Powerco's debt requirement.

ABN Amro head of research James Miller said Vector, the frontrunner in the bidding, had offered a fair price and would be firmly placed in the number one spot.

"I personally would have found it difficult if they didn't get it because they've got all the synergies.

He said if Vector could achieve the synergies it was targeting, "then it could be a very good deal all round".

"For Vector it's the making of them, no question. It will put them as the dominant player in the sector -- Powerco will be number two.

"Powerco's picked up some lovely assets -- the Tauranga assets -- and Vector's consolidated into the high density, high growth areas, the absolute plums of that industry in New Zealand."

"Vector always were number one on the block years ago, then UnitedNetworks came in and got bigger, and now they've just reasserted their dominance in the sector."

Vector changed its name after the fiasco of the Auckland power crisis in 1998 which caused widespread blackouts in the city.

Mr Miller said the purchase would cut a lot of costs out of the sector, benefiting consumers.

"You can't pull one of these deals off without a consumer element to them, it has to be positive," he said.

Hawke's Bay Network chief executive Ken Sutherland promised his company's agreement to buy the Taupo and Rotorua regional electricity network assets of UnitedNetworks would give long-term benefits to both shareholder consumers of HBN and the consumers of Taupo and Rotorua.

He said HBN had been looking for expansion opportunities for some time, and was delighted to have acquired its neighbouring lines networks which would jointly form "a strong critical mass in the central North Island".

Mr Upson said Powerco's three largest shareholders had indicated support for the transaction which would see Powerco's electricity distribution networks spread throughout the Coromandel, Thames, Eastern Waikato and Tauranga regions, and gas networks into Hawke's Bay, Manawatu and Wellington.

Chief executive Steven Boulton said the acquisition increased Powerco's scale and geographic diversification and improved the mix of provincial and urban networks to its business.

Having been accountable for ten mergers or asset acquisitions in the energy industry in the past ten years, Powerco had the experience to make this one work, he said.

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