A total acquisition of NGC’s “complementary assets” would let Vector fully move upstream into the business of gas trading, transmission and distribution.

Vector currently owns 67.2% of NGC. The two companies have the same chairman, Michael Stiassny.

A full takeover offer would use the NZ$600 million from expected to be raised from Vector's partial privatisation later this year.

But the New Zealand Herald newspaper today warned that NGC’s present high share price may mean Vector cannot complete a full takeover.

Money raised from the 24.9% privatisation of Vector, through its IPO, will be used to pay debt incurred when Vector bought 66.05% of NGC from Australia Gas Light last year. (Another 1.15% was purchased at the same price early this year.)

The Auckland-based company is also offering preference rights in the IPO to its bondholders and income beneficiaries of the Auckland Energy Consumer Trust that owns 100% of Vector.

Last December’s independent report from Grant Samuel & Associates assessed the underlying value of NGC shares to be NZ$2.50-2.76. However, those shares are now trading around NZ$3.40.

The newspaper says Macquarie believes Vector is likely to offer about NZ$3.18 per NGC share, paying half in cash and half in its own shares. With a 12% premium added, this would take its value up to the NZ$3.40 mark.

CS First Boston, in a research note published yesterday, also raised the possibility that Vector would make only a partial takeover, which would avoid paying too much for the remaining NZ shares.