Vector deal still not sealed

By Nick Stride

Friday 20th September 2002

A full Vector takeover of United Networks is not yet a foregone conclusion, with a critical shareholder as yet undecided.

The United Networks Shareholders' Society has a blocking 10.7% stake worth $160 million at Vector's offer price.

Vector last week refused to say whether the society had undertaken to accept the offer, describing the question as "speculative."

Society spokesman Ewan Price this week answered with a simple "no."

Nor had the society undertaken to vote in favour of a resolution to approve simultaneous sales of UNL assets to Powerco and Hawke's Bay Network, Mr Price said.

As yet undetermined is whether departing shareholder Aquila will be entitled to vote its 70.2% stake.

The society said it was unsure of Aquila's entitlement. Finance general manager Ian Hadwin said it was unlikely Aquila would still be a shareholder when the meeting was held.

The society's shares are critical to Vector's plans as the lines company needs 90% of UNL's shares to go to compulsory acquisition. It needs all the shares to access UNL's cash flows.

Media this week reported Vector's owner, the Auckland Energy Consumers Trust, planned to float 25% of the merged entity. The plan has not been confirmed by the trust but a float would be complicated if outside shareholders remained in UNL.

The society holds its shares as trustee for the North Shore city, Waitemata city, and Rodney district councils.

At $9.90 Vector's offer values UNL at $1.5 billion.

The assets Vector plans to keep are valued at $500 million and it plans to sell gas and network assets to Powerco and HBN for $1 billion.

It will reportedly raise up to $350 million in a capital bonds issue and will fund the remainder with bank debt.

Meanwhile, Powerco chief executive Steven Boulton dismissed talk the company was overpaying for UNL assets.

Rumours have been circulating the company is paying 2.3 times ODV (optimised deprival value).

Mr Boulton said the market had been "misinformed and ill-informed by a number of players."

The company was comfortable with the 1.8 times reported by The Dominion Post.

"The market doesn't understand ODV is a theoretical construct. It values timber, steel, and copper but it doesn't value data, systems, people, or the contracts that guarantee revenue streams," Mr Boulton said.

The acquisitions will double Powerco's size, to an enterprise value of $1.7 billion.

Mr Boulton said the deal would deliver "reasonably firm and eminently achievable" synergy gains.

Unlike the 2000 merger with Central Power, "we don't have six-month integration issues to deal with. An effective and immediate transfer of data into Powerco systems will be completed by the end of January next year."

Rating agency Standard & Poor's placed Powerco's debt on negative watch following the announcement of the UNL asset acquisitions.

Mr Boulton said the post-transaction position was very clear. Following the $150 million capital raising the company was likely to have an investment-grade BBB plus rating, one notch down from the present A-.

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