King Country shareholders urged to reject Todd deal
Analyst says shares worth more than the $4.75 they would be allocated at.
King Country Energy shareholders are being urged to reject a deal which will see Todd Energy take control of it at a discount to an independent report’s fair value.
Craigs Investment Partners questions a deal recommended by the board of Taumarunui headquartered King Country, whose chief executive, Rob Foster, previously worked as a utilities analyst at Craigs.
Next week shareholders in King Country will vote on a proposal to pay $70 million for the 50 per cent of Mangahao hydro power station it doesn’t already own.
The station, situated near Shannon, produces an average of 132 gigawatt hours (GWH) of electricity a year from the Mangahao River, and has been jointly owned by Todd and King Country since 1997.
Announcing the deal proposed in March, King Country said its desire to grow was being restricted by its generation output. It already buys more than 40 per cent of its customers’ demand from the wholesale markets.
Just under half of the deal would be funded through cash, along with 7,629,000 new King Country shares, which would see Todd’s stake rise from 35.4 per cent to 54.1 per cent.
King Country’s shares trade on the Unlisted market and it has more than 7000 shareholders, many from a distribution to customers in the 1990s.
Craigs research analyst David Boyce said the price at which shares were being allocated, $4.75 each, was 26 per cent below the upper value from an independent report, and Todd should pay a premium for control.
Meanwhile King Country was paying an ‘‘eye-watering’’ multiple for full control of the asset, of 16 times its earnings before interest, tax, depreciation, amortisation and changes in the fair value of financial instruments (Ebitdaf). The independent report valued King Country as a whole at less than 10 times Ebitdaf.
‘‘While we fully endorse King Country Energy’s efforts to increase its generation capacity to enable it to grow, we have a number of concerns about the fairness of this transaction for minority shareholders,’’ Boyce wrote, adding that it would be more appropriate to fund the deal through a rights issue.
Foster said the independent report on the deal had recommended the deal was in the best interests of investors.
Foster said while its four other stations were ‘‘run of river’’, Mangahau had considerable water storage, meaning generation could be adjusted based on wholesale prices, giving it a greater asset value.