Infratil gains and Contact lowers as Manawa merger beckons
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More news: Shares in Infratil advanced while Contact Energy edged lower, after the infrastructure investor backed Contact's proposed acquisition of its majority owned electricity company Manawa Energy.
Infratil shares were up 1.5% to $11.22 by 3pm AEST, while Contact shares fell 0.3%.
Morningstar analyst Adrian Atkins noted that acquisition is now likely to proceed, with Infratil and TECT — which own a combined 78% of Manawa — supportive of the deal.
He flagged that the main obstacle to the merger is gaining approval from the New Zealand Commerce Commission, though the deal is unlikely to noticeably reduce competition due Manawa's limited retail operations.
However, Atkins said that wholesale electricity prices are "worryingly high" and the commerce commission "may balk" at even a small lessening of competition in generation amid an energy crisis.
Infratil supports sale of Manawa Energy to Contact Energy
The news: New Zealand infrastructure investor Infratil said it will support Contact Energy's proposed acquisition of its majority owned electricity company Manawa Energy.
The numbers: Infratil and Contact, both dual-listed on the ASX and NZX, have entered into a binding voting agreement which will see Infratil commit to vote its 51% stake in Manawa in favour of Contact's proposed takeover, subject to certain conditions.
Contact has offered to buy 100% of Manawa's shares via a scheme of arrangement, which would see Manawa shareholders receive a cash consideration of NZD1.16 ($1.07) per share and 0.5719 Contact shares for every Manawa share they hold.
Infratil noted that the total offer price of NZD5.95 per Manawa share, based on the five-day volume-weighted average price of Contact's shares prior to the announcement, represents around a 48% premium to the Manawa share price prior to the announcement.
If the takeover is successful, Infratil's gross cash proceeds from the sale will be around NZD186 million, subject to any pre-completion dividends. The investor will also own approximately 9.5% of Contact upon completion of the deal.
Contact, which is also listed on both the ASX and NZX, said Manawa is expected to contibute around NZD220 million in normalised EBITDAF after realisation of future embedded value, portfolio benefits and cost synergies.
The scheme is expected to take between six and nine months to be implemented.
The context: Manawa is a renewable electricity generator, owning and operating 25 hydro schemes around New Zealand. Last month, the NZX-listed company cut its full-year earnings guidance, after setting a provision for a potential bad debt on its contract with an electricity retailer which is in default of its payment terms.
The Tauranga-based company also noted that it is also being impacted by electricity market conditions, including "the extended dry and calm sequence experienced for a number of months" which is depleting hydroelecricity and wind power generation volumes.
What they said: "This transaction represents a significant step in enhancing the combined capabilities of both Manawa and Contact," Infratil chief executive Jason Boyes said.
"By integrating Manawa's hydro assets with Contact's diversified energy portfolio, the merged entity will create a more resilient and flexible generation platform."
Contact CEO Mike Fuge said: "This acquisition will make Contact Energy a stronger, more resilient energy company for New Zealand with a more diversified generation portfolio across the North and South Islands".
"Our hydro assets are complementary, with different seasonal generation profiles, which will help Contact to better manage dry year risk and to sell larger volumes of fixed price electricity into the market than we could do independently," he said.
The sources: ASX announcement, ASX announcement, Morningstar research
