Trustpower offers 'fair price' for King Country Energy 'bolt-on', investor says

Trustpower [NZX: TPW] has offered a "fair price" in its $126.6 million takeover of King Country Energy, a bolt-on acquisition that will lift the utility company's customer base by about 7 percent and adding significant electricity generation capacity, investors say.

The Tauranga-based utility company will pay $5 a share in cash in a full takeover offer for King Country Energy, provided it gets at least 70.2 percent of the company, or a lower price of $4.78 a share if it falls short of that mark, it said in a statement. At the higher price, that's a 20 percent premium to the $4.18 that King Country Energy shares last traded at on the Unlisted platform, and at the lower price it's a 14 percent premium.

The transaction was "interesting and positive" for Trustpower and was at a fair price, especially as Trustpower "trades on much higher multiples than King Country Energy does," said Paul Harrison, who helps manage more than $700 million of New Zealand and Australian equities at Salt Funds Management. The takeover wasn't a big deal for Trustpower, which has a market capitalisation of $2.5 billion, while King Country Energy's market cap is just over $100 million.

Trustpower, which is controlled by Infratil, rose about 0.3 percent to $7.76 and has dropped 2 percent this year while the NZX 50 index rose 7.9 percent. The stock is rated a 'buy' based on the consensus of six analysts polled by Reuters.

Trustpower said it has a lock-up arrangement with Todd Corp's Nova Energy for 54 percent of the central North Island electricity generator and retailer, meaning it has already met the minimum 50.1 percent threshold of its offer. Trustpower may not reach the 90 percent threshold needed to enforce mop-up provisions because that would require it to win over the King Country Electric Power Trust, which owns 20 percent and isn't looking to sell.

The purchase would add King Country Energy's four hydro generation stations and the Mangahao station near Palmerston North to Trustpower's portfolio, increasing installed capacity by 53.7 megawatts and producing an average 191 gigawatt hours a year. The deal would also add about 17,500 customer to Trustpower's 252,000 clients.

"Trustpower sees KCE's provincial North Island assets and customer base as a good strategic fit with Trustpower's New Zealand business and its core operational competencies," the company said in a statement.

If the deal goes ahead, Trustpower will seek board representation and will "undertake a thorough review" of King Country Energy. Until the review is completed, Trustpower says it can't be sure if it will make material changes to the power company's assets or capital structure.

Trustpower will fund up to $125 million of the acquisition through committed bank facilities. The company's total bank facilities were $765.2 million as at Sept. 30, of which $28.6 million was maturing in the next 12 months.

The power company will make its formal offer between 14 and 30 days from today's takeover notice.

(BusinessDesk)