Contact Energy Reaches Conditional Agreement
Contact Energy Reaches Conditional Agreement To Acquire Taranaki Combined Cycle Power Station
Contact Energy Ltd today announced it has entered into a conditional agreement with NGC Holdings Ltd to acquire the Taranaki Combined Cycle power station and related interests for $500 million. The purchase price is made up of consideration for the shares in Stratford Power Limited (“SPL”, the NGC subsidiary that owns the station), repayment of existing SPL debt, and the associated forward electricity sale contracts (hedges).
The acquisition is conditional on Contact gaining a clearance from the Commerce Commission. Contact lodged an application for clearance with the Commission in November, and a decision is expected early in the New Year. The agreement is also conditional on NGC shareholder approval and the termination of the cross border leveraged lease currently in existence. NGC’s majority shareholder, The Australian Gas Light Company, has indicated it intends to support the sale to Contact. Subject to the satisfaction of these conditions, settlement date for the transaction is expected to be February 2003.
“Acquisition of TCC would provide a number of important strategic benefits to Contact. It would broaden Contact’s generation base, and allow us to pursue further growth in the downstream electricity business, especially in the sale of contracts to large customers and to the mass retail market,” Contact’s Chairman, Mr Phil Pryke, said.
“Contact has been a major contributor to creating a competitive retail electricity market, achieving 50% growth in our retail customer sales volume in the last three years. More recently, we have put priority on identifying mechanisms to expand our generation capacity, to underpin and enhance our capacity to remain a strong retail competitor”, Mr Pryke said. “This acquisition is key to our achieving this and underlines Contact’s commitment to and confidence in the New Zealand energy sector.”
“Unlike some of our competitors, Contact does not have a sizeable ‘greenfield’ generation development that can be progressed in the near term,” said Contact Chief Executive, Mr Stephen Barrett. “For that reason, we are extremely pleased that a conditional agreement has been reached with NGC to acquire the TCC station.”
SPL achieved earnings before interest, tax and depreciation (“EBITDA”) of $58.2 million in the year to 30 June 2002. The purchase price represents a multiple to this historical EBITDA of 8.6x.
“We believe that the acquisition and integration of TCC within Contact’s generation portfolio will yield significant synergies over time, and will be a major contributor to net earnings in future years. However, the combination of a planned maintenance outage in April 2003 and the fact that Contact will only have owned the plant for eight months at next balance date mean while the acquisition is projected to be cashflow positive from the outset, it is expected to marginally dilute net earnings for this financial year.”
“The TCC station uses a combined cycle gas turbine to achieve a very high level of energy efficiency. The station also has a dedicated fuel contract backed by Shell, which provides a very high degree of fuel supply assurance until 2010. We see this aspect of the deal as especially important, given the increased uncertainty of supply from the Maui field” said Mr Barrett.
TCC is a four year-old, 357MW plant situated near Stratford and will complement Contact’s existing thermal generation fleet at Otahuhu-B (380MW), Otahuhu-A (40MW), New Plymouth (400MW), and Te Rapa (44MW). Contact also has geothermal and hydro power stations capable of producing a total of 996MW.
Contact has no plans to change the size of the workforces of TCC or any Contact generation plant as a result of this acquisition, said Mr Barrett.
“Indeed, Contact sees an enhanced role for its New Plymouth plant as it would be able to act as an integrated back-up not only to Otahuhu-B, but also to TCC.”
Mr Barrett confirmed that Contact had arranged a bridging facility to fund the transaction, and that the company intends to refinance this early in the New Year.
“This acquisition is well within the company’s balance sheet capabilities, and there is no intention to seek additional equity,” Mr Barrett said.
financial advisers on the transaction are Deutsche