The proposed merger between Port Otago and Lyttelton Port of Christchurch (LPC) took a major step forward yesterday with a tantalising offer to minority LPC shareholders, laying a foundation for a delisting from the New Zealand stock exchange.
As a private company (delisted), unbeholden to large numbers of shareholders, last month's proposed merger between LPC and Port Otago could be a mere formality, albeit with precedent-setting Commerce Commission approval being required.
LPC is being manoeuvred toward a delisting by 75% owner the Christchurch City Council's $6.97 million offer to shareholders to acquire a further 2.48% of the company - offering a 50 cent or 22% premium per share at $2.75, which is higher than the shares have ever traded.
The Christchurch council, represented by its subsidiary Christchurch City Holdings Ltd (CCHL), could see the stand in the market increase its holding from 75.68% to 78.18%. However, it is restricted from seeking a larger percentage of shares because of the "creep" factor under the Takeover Code, which disallows share acquisition by stealth.
Otago Regional Council-owned but non-listed Port Otago maintains a 15% blocking stake in LPC, worth about $43.5 million yesterday. Port Otago and LPC announced in late October they are actively exploring the possibility of a merger.
The merger proposal protects the infrastructure assets of each port and is likely to take the form of a single-board management to promote cost savings in maintenance, infrastructure and running costs; but also importantly to present a united bargaining position with major shipping lines.
CCHL chief executive Bob Lineham made clear the intention to delist from the stock exchange yesterday.
He told shareholders CCHL was offering the premium "as experience shows that the share price drops" after delisting, and to "act promptly", reiterating that during CCHL's unsuccessful takeover offer in 2006 CCHL wanted to delist LPC.
That attempt was controversial in that CCHL wanted to delist and sell part of LPC into a foreign-owned management company, but now Mr Lineham is saying the delisting is "to ensure that strategic assets are protected".
"Any proposal to cause LPC to be delisted is not inconsistent with the recent announcement that LPC and Port Otago are exploring a possible merger of their respective operating and commercial activities," Mr Lineham said.
He said in an interview that CCHL was "keen to buy back" Port Otago's 15.5`% blocking stake and on invitation had spoken to the Otago Regional Council on the matter. However, for strategic reasons Port Otago's stake was not for sale.
Port Otago chairman John Gilks was contacted and said Port Otago had no prior knowledge of the CCHL offer and Port Otago had no plans to sell any of its shares.
Mr Gilks believed there was "little prospect" of LPC delisting, as it would continue to have a "significant" number of shareholders on its register, even after a successful uptake of yesterday's offer.
"This will have no bearing on the discussions under way between Port Otago and LPC," Mr Gilks said.
Mr Lineham said because LPC is listed, CCHL could not receive "the same confidential strategic information and participate in key decisions" as it could with other non-listed subsidiary companies, he said.
ABN Amro Craigs broker Peter McIntyre said the CCHL bid was to buy out minority shareholders to reduce the "free float", or numbers of shares being traded, and later force through the delisting, knowing that Port Otago and LPC between them would hold a total 93.7% (15.5 + 78.2).
He was recommending the targeted "mum and dad" investors hold and not sell their stock, as a delisting would have to buy out all shareholders. An independent valuation was likely to be around $3 per share, he said.
However, Mr Lineham said a recent Credit Suisse valuation put LPC shares in a $2.30-$2.75 range.
An option for LPC, after its present offer is fulfilled, could be to go back to the market with a higher offer. However, Mr Lineham said "that was not the intention" and he believed offering the top-of-the-range Credit Suisse valuation was "very fair".
The CCHL offer is open until November 28, or when CCHL have attained the target 2.53 million shares. Shareholders who own more than 9900 shares can only sell a maximum of 5000, while shareholders who own fewer than 9900 shares can sell them all.
• Mr McIntyre's financial disclosure document is available on request.
