In a letter released today, Assistant Auditor-General Bruce Robertson found the April 23 announcement of a possible merger between NGC Holdings and Powerco meant the council needed to act promptly in order to protect the value of its investment.
Robertson says the council complied with the Local Government Act 2002 when it decided on April 26 to initiate a process to sell its Powerco shareholding without a special consultative procedure. "In our view, the circumstances were not satisfied in all respects, but, even if they were not, the council's decision was not unlawful."
The council recognised the significance of the decision to the district and obtained extensive legal and financial advice throughout its decision-making process. The NZ$5 million advice from PricewaterhouseCoopers said the value difference between different options could vary by between NZ$25 million and NZ$74 million.
However, Robertson says the council's investment policy needs more detail on how it will invest the proceeds of the Powerco shares, given that some 37.5% of Prime Infrastructure's payment will be in the form of unrated, unsecured Subordinated Prime Adjusting Reset Convertible Securities (Sparcs).
The council's investment policy says risk management will be developed and approved on a case-by-case basis, though Robertson says this policy presently contains no risk-based measures such as credit ratings or limits.
Prime’s takeover Powerco now looks likely to succeed, though needing more cash and to satisfy the Takeovers Panel regarding adhering to its takeover code.
Media reports say Prime may have to find up to NZ$118 million extra to fund a full takeover of Powerco and is altering its takeover documents, which must be mailed out today to meet the takeovers code deadline, to reflect that.
The DominionPost today quotes Prime chief executive Chris Chapman as saying the Brisbane-based company is still working through the exact numbers, with the challenge being to get the documents in the mail to about 20,000 minority Powerco shareholders.
Chapman says Prime is confident it has at all times acted in accordance with the takeovers code and that the bonds reselling was “solely between the majority shareholders and any other parties to such arrangements".
Powerco is due to post out its "target company statement" around October 18 and it will be interesting to see what that recommends, given last week’s rejection by Contact Energy independent directors of the NZ$5.57 per share offer from Origin Energy which was below market value. Prime’s NZ$2.15 per share offer for Powerco is, however, slightly above market value, with Powerco shares this morning trading at NZ$2.12.
