Full Takeover Ahead

Over the past couple of weeks, electricity consumers in the Eastern Bay of Plenty have been asked to vote by the Eastern Bay Energy Trust (EBET) on their proposal to take over the publicly listed Horizon Energy (HED).  The Eastern Bay Energy Trust already owns 77.29% of Horizon Energy, so it already effectively owns it.

Last year, Horizon was the subject of a partial takeover by the Marlborough Lines Company.  The price being offered was $4 per share, the same as being offered now.  The EBET at the time said that the offer price was too low, and they rejected the unsolicited offer, which meant that the takeover by Marlborough was dead in the water.  The reality for HED share holders is that there is no demand for HED shares for buyers other than EBET, simply because EBET has more than sufficient shares to block any other potential takeovers.  The only way for Horizon to have a change of ownership is for EBET to want to sell out of its major investment asset.

While Horizon remains a publicly listed company, there is a degree of transparency.  It is under the scrutiny of the New Zealand Exchange and must comply with its regulatory requirements.  It also has a board of directors, some of who are directors of other listed companies.  While some people will say that directorships are effectively an old boys club, the reality is that they are contestable positions, and all shareholders have the opportunity to vote them in or out.  Invariably they will have some demonstrable skill in management or some area of expertise which can be used for the benefit of the Board and the company.  Contrast this with the trustees of the Eastern Bay Energy Trust.  Several of the trustees are appointees, and the balance is comprised of elected positions, effectively a popularity contest.

The real danger for Horizon if the takeover succeeds (and they only need to achieve 90% shareholding, and the remainder will be compulsorily acquired) is that they may lose the skills and experience that the present board of directors have.  Their skill level and experience appears to be a somewhat higher level than that of the majority of the EBET trustees.  Witness the financially disastrous investments or should we say forays that the EBET has made over the past decade.

Will the community be better off by the EBET owning the local lines company? That is a really debateable question.  Lines companies must provide a minimum level of service.  That is one of the requirements laid down by the government.  To do this, they have a need for locally based staff or contractors.  This covers the majority of the staff employed by Horizon.  Some staff also do non core work, which could be done by other contractors, which again would use local staff.  The most vulnerable staff would be those in administration, and their jobs could be done from virtually anywhere.  The question of staff losses if Horizon was sold to another party is a red herring.  Any staff losses would be minimal.

Will lines charges decrease as a result of a takeover? The short answer is probably not, as the owner needs to generate a profit.  Will the charges increase? Most likely over time they will, at a similar rate that other lines companies charge.

Whenever a company is taken over, there is a danger that the key management personnel within the company get unsettled and decide to seek opportunities elsewhere, thereby losing the skills and expertise that were being used to run the company.  If that were to occur it can be disastrous and a lot of value can be destroyed in a short time.