Former Alinta Ltd chairman John Poynton believes an opportunity to keep the business Western Australian-based has been lost with the directors' decision to accept a $15 per share bid from Babcock & Brown Ltd which will see the energy group carved up.
Former Alinta Ltd chairman John Poynton believes an opportunity to keep the business Western Australian-based has been lost with the directors' decision to accept a $15 per share bid from Babcock & Brown Ltd which will see the energy group carved up.
"Our offer created value, abided by the rules and would have maintained a base in Perth," he said.
"Some of us are bemused and annoyed by the board's acceptance of what is an inferior bid."
Alinta is one of WA's biggest companies by market capitalisation and has been one of the state's successful growth stories since listing after a state government privatisation last decade.
Mr Poynton was part of the management buyout team which was backed by Macquarie Bank, the losing bidder despite offering a higher price at $15.45 per share, an 11th-hour offer which sought to trump the $7.4 billion Babcock & Brown deal.
While Mr Poynton refused to comment on what the Macquarie-led bidders would do next, the decision by the directors - led by new chairman John Akehurst - to reject a higher offer does cast doubt of the losers, including the five-man management team, returning to the table.
The Alinta sale resulted from a surprise MBO which included Mr Poynton and then CEO Bob Browning. Mr Browning has since agreed to take a US-based executive psoition with shipbuilder Austal Ltd.
Mr Akehurst said the last-minute Macquarie deal was thwarted by a default mechanism under which Alinta shareholders who did not participate in its plan received scrip in a proposed new listed company.
"The level of the cash component is obviously an important matter," he is reported as stating.
"But the key aspect of the bid, which the directors found untenable, was the default option and the fact that we were concerned about the likely trading performance of the new scrip when it's issued.
"It was not possible to have the cash offer without the scrip offer - on that basis, we preferred to therefore sign the agreement with Babcock & Brown/Singapore Power consortium."
In a statement Macquaire said: "In opting for the Scrip Option as the default, Macquarie took into account the potential capital gains tax liability for small retail investors."
"The alternative of a cash default option would impose CGT on shareholders who fail to make an election."
Under the succssful deal Alinta shareholders will receive $8.50 cash per share as well as scrip in Babcock & Brown funds, including 7.83 Babcock & Brown Infrastructure securities, 3.31 Babcock & Brown Power securities and 1.3 Babcock & Brown Wind securities for every five Alinta shares held.
Alinta shareholders will also get 1.51 Australia Pipeline Trust units or equivalent for every five shares, due to Alinta's holding in the trust.
Under the winning deal the assets of Alinta will be divided up among the Babcock & Brown managed funds and minor partner Singapore Power.
All of the WA-based assets will go to Babcock & Brown funds.
Meanwhile, Moody's Investors Service has placed on review for possible downgrade the Baa3 rating of BBI's financing vehicle.
Moody senior analyst Clement Chong said the review would focus on the impact of the transaction on the group's financial profile in the context of the tolerance ranges for the key financial metrics, execution risk given the substantial nature of the transaction, and challenges in bedding down the assets.
Moody's analysis will incorporate BBI's solid track record in integrating new acquisitions. The review will also incorporate BBI's ongoing business strategy and its acquisitive nature.
To the extent that the transaction proceeds on the terms announced, the rating could be confirmed, given the enhanced diversity these assets bring to BBI and the substantial equity portion embedded in the consideration.
Such an outcome would anticipate that BBI will remain within its financial metrics appropriate for its Baa3 rating, namely debt to EBITDA (earnings before interest, tax, depreciation and amortisation) remaining below 7-8 times and FFO/Interest staying above 1.8 times.
The proposed acquisition is subject to the approval of the majority of Alinta shareholders and certain conditions being met.
Below is the announcement from Alinta's directors and a response from Macquaire:
Alinta Limited (Alinta) today signed a Scheme Implementation Agreement under which a consortium of Babcock & Brown (B&B) and Singapore Power International (SPI) would acquire Alinta for a total consideration valued at $15.00 per share.
The Alinta Directors intend to recommend that Alinta shareholders vote in favour of the proposed scheme of arrangement, in the absence of a superior proposal and subject to an independent expert concluding, and continuing to conclude, that the proposal is in the best interests of Alinta shareholders.
Under the proposed scheme, Alinta shareholders will receive:
- $8.50 in cash per Alinta share;
- 7.83 Babcock & Brown Infrastructure securities,
- 3.31 Babcock & Brown Power securities
- and 1.30 Babcock & Brown Wind securities for every 5 Alinta shares; and
- An in specie distribution of 1.51 Australia Pipeline Trust units or equivalent for every 5 Alinta shares.
The total consideration is valued at $15.00 per Alinta share based on the 30 day VWAP of the relevant Babcock & Brown entities and APT securities. This value represents a premium of 39% to Alinta's 30 day VWAP prior to announcement by Alinta of a potential management buyout proposal on 9 January 2007.
The consideration will be structured to include a fully franked dividend, with franking credits of up to 40 cents per Alinta share, increasing total value to $15.40 for shareholders who can make full use of the franking credits. The cash component of the consideration may be subject to certain working capital and asset sale proceeds adjustments that are expected to be minor.
Alinta Chairman, Mr John Akehurst said: "The Board received proposals to acquire the Company from two consortia and has been in negotiation with them over the last six days. There has been a thorough and rigorous evaluation in which due regard has been given to the value of the considerations offered and to the conditions and risks associated with the proposals.
"The proposals were also compared against possible internal restructuring alternatives.
"The Board has concluded that the B&B/SPI consortium has made the superior proposal, following an open and competitive tender process.
"Since its listing on the ASX in 2000, Alinta has grown from a small, WA-based gas distributor and retailer with a market capitalisation of $350 million to become the nation's largest energy infrastructure company, valued at $7.5 billion under B&B/SPI's proposal. Alinta is a great success story and all our employees can be proud of the role they have played.
"While it will be sad to see the end of Alinta as a listed company, the consortium's offer is an attractive one. Under the offer, Alinta's shareholders will receive a strong mix of cash and securities which provide a continuing exposure to growth and yield stocks in the energy infrastructure field."
Assessment of Options
Mr Akehurst said both external proposals were assessed against Alinta's own internal plan to restructure the group. The Directors are satisfied the B&B/SPI offer provides an appropriate premium over the value attributed to internal restructuring alternatives. The Directors gave due consideration to assessed values weighed against implementation risks.
Mr Akehurst said: "Alinta's internal restructure proposal was an attractive and realistic plan that both the company and its advisers believed offered a premium over the Alinta trading range prior to announcement of the possible MBO proposal. Ultimately however, B&B/SPI have made a proposal that allows shareholders to reap today both the future upside of our internal plan and a premium for their shares.
"We also placed significant importance on the relative certainty of the valuation of the scrip component of the B&B/SPI proposal created by readily observable market prices.
"In addition the B&B/SPI proposal has limited conditions and provides a high level of confidence that the transaction will be completed."
Scheme Implementation Agreement
Alinta has entered into a Scheme Implementation Agreement (SIA) with B&B and SPI. Under the SIA, Alinta has agreed to propose schemes of arrangement for the acquisition of its shares by B&B and SPI and the cancellation of employee options. Alinta's Directors recommend that shareholders and option holders vote in favour of the schemes (and intend to vote their own shares in favour), in the absence of a superior proposal and subject to an independent expert concluding, and continuing to conclude, that the proposed scheme is in the best interests of Alinta shareholders.
A break fee of $37.5 million (0.5 per cent of the value of the B&B/SPI proposal) will be payable in the event of a third party announcing a competing proposal which becomes unconditional and acquiring at least 50.1 per cent of Alinta or in the event of a material breach of the SIA by Alinta.
Meetings of Alinta shareholders and option holders to approve the proposed schemes are expected to be held in July 2007.
Alinta is being advised by Carnegie, Wylie & Company, JPMorgan and Blake Dawson Waldron.
Below is the Macquarie announcement:
In response to a number of enquiries received today in relation to the last proposal Macquarie put to Alinta early this morning, Macquarie Bank advises the following:
Macquarie proposed an offer by way of Scheme of Arrangement for all the shares in Alinta at a fully underwritten price of $15.45 per share. Shareholders were to be given the following choices for each Alinta share:
- Cash Option: Cash of $14.19 + an APA distribution valued at $1.26 based on market price for APA with a cash out option;
- Cash & Scrip Option: Cash of $4.82 + APA Component + a share in an Infrastructure Company with a value of $9.37 ; or
- Scrip Option: APA Component + 1.487 share in an Infrastructure Company with a value of $ 14.19
Each option totalled $15.45 per share.
If investors elected the Scrip Option there was Capital Gains Tax rollover relief available.
Given the nature of the Scheme proposal, there needs to be a default option for shareholders who fail to make an election. In opting for the Scrip Option as the default, Macquarie took into account the potential Capital Gains Tax liability for small retail investors. The alternative of a cash default option would impose Capital Gains Tax on Shareholders who fail to make an election.
The Macquarie proposal for the Infrastructure Company was fully underwritten by ABN Amro Rothschild, Citigroup, Credit Suisse, Goldman Sachs JB Were and Macquarie ("Underwriters") . Full details of the Infrastructure Company were provided to Alinta's
advisers. The Infrastructure Company was to be an internally managed company and in the view of Underwriters compared favourably with other similar listed stocks on all measures including yield, gearing and Enterprise Value multiples
