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Infratil, Mercury have strong incentive to complete Tilt takeover - appraisal

Monday 17th September 2018

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Infratil and Mercury NZ have a strong incentive to increase their stake in Tilt Renewables to 90 percent but may only raise their offer for the business if there is strong resistance from minority holders, an independent review says.

Delisting the Melbourne-based generation developer could save more than A$1 million a year, Northington Partners says. But it says that saving is “minimal” relative to the potential value of future imputation credits from the business, which Infratil may be able to use, given its significant Australian operations.

Whether Infratil and Mercury, bidding as a joint venture, will be prepared to increase their offer is hard to determine and will most likely come down to the take-up of the offer already in the market, the advisory firm said in a 54-page report issued today.

If acceptances are reasonably high - but still not sufficient to reach the 90 percent threshold for compulsory acquisition – Infratil could ‘creep’ up its holdings over time or reconstitute the joint venture for a new offer in the future.

“Conversely, if acceptances under this offer are low, the Tilt JV may be more inclined to increase the offer price towards the end of the offer period in order to improve acceptance levels,” Northington said.

Infratil and Mercury, which control about 78 percent of Tilt, are offering $208.5 million, or $2.30 a share, for the rest of the business.

Tilt’s independent directors today “strongly” recommended shareholders reject the offer which they said was made “more inadequate” by a power supply agreement the firm received last week for part of the output from its proposed Dundonnell wind farm in Victoria.

Tilt shares rose 5 cents to $2.35 on the NZX today. They had traded below $2 most of this year until Mercury acquired its 19.9 percent stake in May.

Northington valued Tilt shares at between $2.56 and $3.01, with a mid-point of $2.79. That valuation makes no allowance for the potential value of Australian franking credits, which may not be captured for a long time since Tilt may continue investing heavily and limit its dividend payments.

Northington said the Infratil-Mercury venture is offering no more than Mercury was prepared to pay in May for a non-controlling minority interest in the business. Nor does it imply any value for the 336 megawatt Dundonnell development, nor the rest of the firm’s development pipeline of wind and solar projects.

Northington valued Tilt’s operating assets at $2.06 to $2.32 a share, Dundonnell at 33 to 44 cents, and the rest of the pipeline at 17 to 25 cents.

Last week Tilt announced it had signed a 15-year supply deal with Victoria's state government for 37 percent of the output from the proposed A$560 million Dundonnell project.

The company expects to make a final investment decision on the 80-turbine project later this year. Construction would begin early next year and be completed by mid-to-late 2020.

The offer from Infratil and Mercury is already unconditional. It must remain open until Oct. 15.

Fiona Oliver, chair of Tilt's independent directors, said that if the major shareholders are to acquire full control they should pay a fair price.

“Tilt Renewables is extremely well positioned to be a significant part of, and benefit from, the global push towards renewable energy and reducing carbon emissions,” she said. “We are poised to make a major difference to the size of renewable energy generation in Australia and New Zealand."


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