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Failed merger a major hurdle for South Island ports

Monday 4th October 2010

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The decision by Lyttelton Port to abandon merger talks with Port Otago will most likely have a significantly negative impact on both companies, according to the New Zealand Council for Infrastructure Developments.

Lyttelton on Friday announced that it has abandoned two years of merger talks to focus on repairing the significant damaged caused to its infrastructure in the wake of the Canterbury earthquake.

Stephen Selwood, chief executive of the New Zealand Council for Infrastructure Developments said with the merger off the table the opportunity to optimise transport links on the South Island has been slowed down or stopped altogether, which will have a impact on both companies and the economy in general.

"If they end up competing without optimising freight flows between the ports, government has to support both with infrastructure," said Selwood.

"That is not the best way to spend New Zealand tax dollars."

Selwood said that while government has displayed a hands-off approach to date, it will most likely choose to priorities its investment in transport network linkages to the more viable of the two major South Island ports.

"Where government has leverage is on where it chooses to invest in the transport network that supports freight," he said.

"I'm pretty sure they won't choose to invest significantly in both."

He said the failed merger resonates farther afield, with an ‘un-optimised' transport network weighing on the broader economy.

"In the end, operating in a sub-optimal way is part of the reason why NZ doesn't fare so well in the international arena," he said.

Lyttelton and Otago first began negotiations after the two signed a memorandum of understanding in October 2008 to explore the possibility of merging.

In February the boards of both Lyttelton Port and Port of Otago announced that that they were satisfied with a report by Antipodes Capital and an independent review by Cameron Partners Investment Bankers, which gave the green light to the deal. The details of the reports were not released, with the companies citing commercial sensitivity.

In a statement issued at the time, Lyttelton Port chairman Rodger Fisher said "the board and management of LPC remain fully committed to the negotiations as it remains our belief that amalgamation is crucial for the long-term viability of New Zealand ports", and that both companies were treating this project with the utmost urgency".

Lyttelton Port is majority held by Christchurch City Holdings, the wholly owned investment arm of Christchurch City Council which owns a 79% stake in the company. Shares were last at $2.49.

Port of Otago is wholly owned by the Otago Regional Council, and holds a 15% shareholding in Lyttelton Port.

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