Saturday, March 18, 2006

Richard Inder: Port raid is really just a bit of jersey pulling

Rivalry between the South Island's largest cities does not really amount to much.

Even when Otago and Canterbury face off in the NPC, the insults the teams trade are as much part of the game as what happens on the field - a genteel opportunity to defame, libel, ridicule and insult.

However, after Port Otago made its dramatic raid on rival Lyttelton Port's share register last week, one could be forgiven for thinking otherwise.

The move - an acquisition of a 10.1 per cent stake for $24 million - has more than a grain of logic.

The stake thwarts 69 per cent shareholder Christchurch City's $214 million bid to take full control of the port and then sell a near half-share to Hong Kong giant Hutchison Whampoa. And it gives Port Otago - 100 per cent owned by the Otago Regional Council - a seat at the negotiating table.

This is a real power. Under the NZX listing rules, Christchurch City and Hutchison, having agreed to form a joint venture, may be treated as related parties.

Any attempt to push ahead with their plans in spite of Otago may need to be put to shareholders - a vote from which Christchurch City would be excluded. And with 10 per cent, Otago has a chance to block the move.

However, in spite of this, the acquisition still looks like an Otago back's desperate jersey-pulling in the closing minutes of a game.

It is difficult to see what else Port Otago can offer its northern rival. Hutchison's intentions are pretty clear. It wants to make Lyttelton the South Island's main container port and link it with its international network of 41 ports in 20 countries.

In the short term, it would make gains by importing its technology, using its clout with suppliers to get good deals on equipment and by bringing its international experience to bear on protracted problems such as the port's troubled labour relations.

It would also use its strength in negotiations with international shipping lines. Sure, the South Island generates an insignificant stream of container traffic in a world context, but it could use concessions in one part of the world to extract concessions here - such as space on a wharf in Shanghai in exchange for a regular visit to Lyttelton.

Meanwhile, in the longer term, a revitalised Lyttelton could set up container-marshalling points all over the South Island and use the newly revitalised rail network to feed into Lyttelton, cutting Port Otago and Bluff's South Port out altogether.

Lyttelton is next to the largest centre of population and is already the exit port for a vast range of exports.

Otago could be a feeder port for Lyttelton, but rail transport between the two would be more efficient than loading and unloading ships.

It is also doubtful the Commerce Commission would sanction a merger between the South Island's largest ports. Meanwhile, bringing in Port Otago will only add complexity - political and economic.

Why engage the party you mean to destroy?

Paddy Austin, chairwoman of Christchurch City Council's commercial arm, said as much this week: "There was no provision for a third partner with [Hutchison] in the terms of the current agreements."

Result: A stand-off.

The future is unclear.

Otago is now sitting on a loss of $2.6 million (the difference between the $2.35 it has paid for Lyttelton's shares and the $2.10 on offer from the Christchurch City Council). That could become much greater if Hutchison walks away.

The burghers of Otago may regard this as a cost of staying in the game, but it will take some explaining.

Got Carter

So farewell Carter Holt Harvey. Billionaire Graeme Hart has the forestry giant in the bag and was yesterday celebrating the end to the seven months of hostilities with his 80-year-old mother.

Now comes the the small matter of the clean-up.

Owning more than 90 per cent of the shares, Hart can compulsorily acquire what's outstanding. However, he has to get to 92.85 per cent of the shares on issue if he is to take out the minorities at the $2.75 offer price.

The details are arcane, but take it as read that if he fails to reach this critical threshold by Tuesday, the close of his offer, he will probably extend the bid for up to 30 days in the hope of mopping up the remainder.

Beyond this period, and assuming he does not reach the critical 92.85 per cent threshold, he has to name the takeover price and have it validated by an independent expert.

Then, if shareholders with more 10 per cent of the outstanding capital object to the price, they can request the Takeovers Panel to name an independent valuer to set a binding price.

Hart has lifted his offer from $2.50 to $2.75 to take his shareholding from 85 per cent to more than 90 per cent. But the bet on holding out this time is not as obvious.

Two appraisal reports have reached a valuation within a cooee of each other, so the odds on a significantly higher figure are not great. Moreover shareholders have to consider the costs of getting the cash now against the risks of getting the same or even less at some indeterminate time in the future.


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