CCHL defends cost for port shares

ALAN WOOD
Last updated 05:00 03/09/2014

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Christchurch City Holdings likely had to pay a "significant premium" to Port Otago for shares it held in Lyttelton Port Company, an independent report says.

The takeover offer from Christchurch City Holdings (CCHL), the investment arm of the Christchurch City Council, was launched last month.

A lockup agreement for the Port Otago shares was part of the process.

CCHL launched the full takeover offer at $3.95 a share, that will cost it more than $65 million.

LPC is also to pay a 20-cent dividend, giving shareholders $4.15 a share, 14 per cent higher than the top end of the $3.35 to $3.65 fair value range of independent appraisers Northington Partners.

Northington said LPC shareholders should accept the takeover offer if they were comfortable the offer of $3.95 a share exceeded the fair value of the shares.

The independent adviser to the port also suggested there was a significant premium in the offer.

"That could potentially be attributed to the additional value that CCHL needed to offer Port Otago in order to secure agreement to acquire its shares," Northington said.

Port Otago chairman David Faulkner yesterday said the price reflected a period of negotiation between Otago and CCHL after both parties paid for their own valuations on the worth of the LPC shares. First NZ Capital had assisted Otago.

"At the end of the day it was a negotiation in which we reached the end point at a bit of a slightly higher price," he said.

While Port Otago had bought in at around $2.35 a share and was selling out at $3.95 a share plus, dividends had been thin on the ground for the period follow the 2010 Canterbury earthquake. Faulkner would not provide a total gain on the transaction.

"We're not unhappy with how we've come out of the deal."

CCHL could not move to a 100 per cent ownership position without the Otago shares, the Northington report said. The combined shareholding of CCHL (79.7 per cent) and Port Otago (15.48 per cent) amounts to 95.18 per cent of total shares.

Under the Takeovers Code once a takeover reaches a 90 per cent threshold of shares on issue, those behind the offer can compulsorily acquire the remaining shares.

CCHL chief executive Bob Lineham discounted the idea the city had paid a premium for the shares. CCHL had requested a valuation from Ernst & Young and had made the offer within the valuation range provided.

"I think valuations are an art not a science and we're satisfied we're getting value for what we're paying," Lineham said.

LPC chairman Trevor Burt said he did not imagine huge changes would happen at board and management level once the company was delisted, particularly at the strategy level.

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However, the level of engagement between LPC and CCHL would increase, and competitor Port of Otago was out of the picture. "So the ability for CCHL to look for future options of what they might do, and that might mean a cornerstone shareholding or whatever (in CCHL), can be very beneficial for the company."

Christchurch city is in the midst of a process of examining ways it might raise capital, that will likely be based around the CCHL companies.

The LPC board has recommended that shareholders accept the CCHL offer, saying the likelihood of a competing offer is extremely low and that Northington's report is "robust".

The offer runs to September 23 but it will take some time for some shares to be mopped up.

There would be fuller disclosure in the company's forward looking statements of intent, Burt said.

LPC shares have underperformed the NZX index over a five-year period, hampered by the Canterbury earthquakes but recently gained value with the takeover offer, and were yesterday trading at $4.11 (see graph).

Northington said CCHL may have determined that paying a premium was more than compensated for by the strategic value gained by moving to 100 per cent ownership.

This meant the total offer consideration of $4.15 a share was about "14 per cent higher than the top end of our value range [$3.65 per share] and we therefore conclude that the offer is fully priced".

ADVISER TO ASSIST PORT ON SAFETY

Lyttelton Port Company will hire an independent adviser to review its new health and safety plan following the death of a port worker last week.

Chairman Trevor Burt said LPC's board had met on Monday evening to further discuss safety initiatives at the port, with that topic always top of the agenda for the directors.

"A question the board have asked is what more can we be doing, other than what we are focusing on and doing at the moment? We're confident we've got a good plan that is starting to get traction."

The port management team, including chief executive Peter Davie, was taking a higher "visible leadership" around the port given that port employees remained upset about a fatality at the port last week, Burt said.

LPC employee Brad Fletcher died on Thursday after a scissor lift toppled, and his was the third death at the port in less than a year.

Burt said the board had agreed that director Jim Quinn would do scoping work towards LPC bringing in outside independent advice to add to an existing safety plan.

"What the board's decided is we'll get somebody independent to come in and assist us to review that plan . . . are there any areas we can fast track."

The board earlier this year stepped in with extra spending, allocating $200,000 plus to improve health and safety practices.

Burt said in theory there was no limit as to how much the port would spend to ensure a safe environment.

In the board's view there was no real issue with port congestion. Container and bulk volumes at the port have been on the increase, while working space at the port has been impacted by earthquake repairs. "When we've looked at our risk assessment and hazard identification around the port, specifically congestion hasn't come up."

Burt and other LPC representatives had met with Worksafe NZ on Tuesday to discuss issues related to the recent death.

The conversation had been at a "strategic level" about LPC's role monitoring safety across the whole of the port, Burt said.

That included the safety of employees from other companies, as well as those employed and contracted by LPC. LPC had also several months ago helped establish a health and safety forum, involving representatives of different user groups at the port.

- The Press

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