Trustpower shareholders vote for demerger

Trustpower's [NZX: TPW] shareholders have overwhelmingly voted to carve out its windfarms and renewable development pipeline, splitting the company into two separate businesses that will be listed on the NZX and ASX. 

Under the proposal Trustpower keeps the trans-Tasman generation assets, while Tilt Renewables gets the wind projects that are either in development or planning stages and are situated mainly in Australia. A court-approved scheme of arrangement would see shareholders receive one share in each of the companies for every existing share they currently own. 

At the company's special meeting today, 99 percent of shareholders voted in favour of the demerger, while 81.2 percent voted in favour of the board being paid for extra work undertaken in connection with the demerger, although 90 percent of shares weren't voted on that resolution. 

Both the new shares will start trading on Oct. 13, with Trustpower's existing shares last trading on Oct. 11. 

Copies of the presentation to investors delivered at today's special meeting highlighted Australia's requirement for about 5,000 MW of renewable capacity to be built within the next five years in order to meet the federal government's renewable energy target. 

Tilt Renewables would target a dividend payout of 25 to 50 percent of its operating free cash flow after debt servicing, reflecting the board's view that a significant level of earnings be retained to fund medium-term growth. The first dividend would be paid in December this year. 

Tilt's revenue and earnings before interest, taxation, distribution and amortisation would be mainly driven by Australia. About 74 percent of revenue would come from across the Tasman and that side of the business would make up 69 percent of ebitda for 2016. Some 66 percent of installed capacity is in Australia and 34 percent in New Zealand. 

It would have about A$100 million of committed debt facilities and A$15 million for working capital. 

Trustpower will now focus on executing its retail strategy to attract customers and the products they take. The power company has moved into the telecoms market and is trying to persuade people to sign up to take broadband and phone services alongside electricity and gas, a new market in which they'll compete with the likes of Spark New Zealand and Vodafone. 

The company is currently New Zealand's fourth largest energy retailer, with approximately 13 percent or 280,000 connections. It has 31,500 gas connections and 65,000 telephone and broadband connections, employing 750 people. 

An independent advisor's report on the deal estimated the transaction and other one-off costs from the demerger to be between $75 million and $90 million, an immaterial amount if the split benefits are achieved but representing a loss in shareholder value if they aren't. 

Trustpower's presentation documents to the meeting showed its legal challenge to the Electricity Authority's draft proposals on transmission pricing is to be heard on Sep 14. Chair Paul Ridley-Smith told investors that the consultation was flawed, and simpler changes could be introduced to better address the authority's concerns. 

The company is currently New Zealand's fourth largest energy retailer, with approximately 13 percent or 280,000 connections. It has 31,500 gas connections and 65,000 telephone and broadband connections, employing 750 people. 

Chief executive Vince Hawksworth said customers who also took telecoms connections were much less likely to switch to a different electricity or gas providers, with a churn rate half that of customers who didn't take phone and broadband through Trustpower. 

The shares last traded at $7.95, up 1.8 percent this year. 

(BusinessDesk)

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