Alinta rejects AGL takeover offer

Alinta Chairman Tony Howarth said today the Alinta Board recommends that its shareholders reject the takeover offer announced today by AGL.
The Alinta Board continues to believe that a merger of the two businesses by a Scheme of Arrangement delivers a significantly better outcome for both sets of shareholders.
Alinta rejects the AGL proposal
Mr Howarth said Alinta shareholders should reject AGL's inadequate Offer as it delivered no premium for control, fails to capture the tax efficient nature of Alinta's Scheme of Arrangement based merger ("Alinta's Proposal") and fails to take into account Alinta's financial and operational results which have consistently delivered better returns to shareholders.
In addition, as AGL's largest shareholder, with 19.9% of the company, Alinta does not support AGL's proposal in its capacity as a shareholder.
Alinta's proposal still best option for all shareholders
Mr Howarth said Alinta still firmly believes that a merger via a Scheme of Arrangement delivers better value for shareholders than a hostile takeover by AGL.
Mr Howarth said he was pleased that AGL has finally accepted the fundamental proposition put by Alinta.
AGL has today confirmed the following elements of Alinta's proposal:
- Alinta's belief that the merger makes sense;
- The ability of the business to deliver a 14.4% uplift to 88.7 cents per share cash dividend in 2007;
- The level of synergies that Alinta advised to the market on 3 March, 2006, that it could deliver, which AGL has previously questioned was achievable; and
- That the combination of two complementary energy businesses will create a value accretive transaction for both AGL and Alinta shareholders.
The main points of difference between the two proposals include: - AGL has confirmed that its takeover proposal does not, and cannot, capture the structuring benefits that are included in the Alinta proposal. Given that Alinta knows that this structuring
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benefit is worth at least $0.80 per share to AGL shareholders, it is difficult for Alinta to recommend a Proposal that does not include this value. - an inferior organisational structure, particularly in regard to the placement of Agility within the infrastructure business, thereby creating a sub-optimal capital structure within each demerged company; and - the fact that AGL wants Board and management control. Alinta should lead the merged Alinta / AGL business Alinta is of the view that there are three major reasons why it should lead the merged business: i) Value: Alinta has paid a significant premium to AGL shareholders to obtain its 19.9% stake. Alinta believes that its price for AGL of $19.45 was very attractive, and the ability for Alinta to accumulate 19.9% in three days demonstrates that this was seen as attractive by AGL's shareholders. The ratio proposed at 1.773 Alinta shares for every 1 AGL share incorporates a premium for control. Without the Alinta premium in place, the consensus sum of the parts valuation of AGL from analysts (referred to in Alinta's 21 February 2006 announcement) is approximately $16.00. Immediately prior to the announcement of their demerger, which is now off the table, AGL shares were trading at $14.50. Alinta will always consider any proposal that delivers an appropriate value to its shareholders. If AGL wished to obtain an Alinta Board recommendation for its takeover proposal the merger ratio would need to reflect an underlying value for AGL of $16.00 per share and a price in the order of $17.00 per share for Alinta representing an appropriate control premium that reflects Alinta's proven growth trajectory. The implied value for Alinta shares in AGL's takeover proposal includes no equivalent control premium to that paid to AGL shareholders by Alinta and is lower than recent trading levels of Alinta. ii) Tax uplift: Alinta's Proposal includes an 80 cent per share tax structuring benefit, achievable due to the resetting of the depreciable cost base of AGL's infrastrucutrue assets. The takeover proposal announced by AGL today, can not include this 80 cent per share benefit. iii) Senior management positions and Board representation: Alinta notes that Paul Anthony has never run a significant Australian business and therefore has no experience in the Australian gas and electricity markets. In a merger, Alinta would look to add to its skill base by utilising the experience of existing AGL management. In addition, it is Alinta - and not AGL - that has a proven and successful track record in extracting cost savings from businesses it has acquired. AGL Board and management have had over a decade to extract the cost savings they now say they will deliver. This requires a significant leap of faith by AGL shareholders and it is, quite simply, not something that Alinta shareholders should concede. 2
Mr Howarth said today: "The net effect of what AGL has proposed today is essentially the same as the Alinta merger proposal," Mr Howarth said. "We are perplexed that AGL has resoundingly backed our proposal to merge the two companies, and has strongly supported the value we are offering to AGL shareholders, yet it has been unwilling for the past three weeks to engage in further discussions. "The simple fact is that AGL's Board and management have lagged behind Alinta on every major financial and operational metric. "We don't believe AGL shareholders will be better served by an AGL Board and management team that has provided them with total returns which are about one-quarter of those the Alinta shareholders have enjoyed. "The AGL Board has presided over an organisation that has failed to drive costs down, failed to make value accretive acquisitions or grow shareholder wealth to the extent they should have. "This same Board is now asking Alinta and AGL shareholders to believe it can extract significant synergies from a combined business when it has consistently failed to do so in the past and recently questioned the existence of such synergy opportunities. "However, AGL appears to be more concerned with protecting their $24 million investment in Paul Anthony and the tenure of its Chairman. "The man who would catapult to the top of the CEO salary tree in Australia has never managed a significant business in this country, and was CEO of Contact at a time when its share price significantly under-performed the New Zealand Index and has a track record in the past few years of 'jumping ship' after only a short period of time." Alinta's next steps Since November 2005, Alinta has gone to some lengths to engage AGL on its proposal to merge the two organisations. These attempts have proven fruitless as AGL has consistently refused to engage with Alinta. See attached timeline. Regardless, Alinta will continue to attempt to engage AGL and its advisers in serious dialogue to put the merits of merging the two companies via a Scheme of Arrangement, and discuss many of the points raised by AGL today including governance and structural issues. 3
A True Merger? Here's the history: November 05: Alinta approach AGL with a merger proposal AGL dismiss as incomplete and conditional. Despite an invitation to ask questions or seek further information. AGL did not engage. 22 February 06 Alinta purchase 19.9% of AGL to demonstrate commitment to a merger. 23 February 06 - 6 March 06 Alinta try and engage in discussions - this is frustrated. On 3 March Alinta lodges a public proposal to try and move a merger forward. 6 March 06 Questions received from AGL - "largely relating to technical / financial issues".1 10 March 06 Confidentiality Agreement signed on the basis the parties wanted to sit down and negotiate in good faith. 10 March 06 Alinta provides information to AGL in response to questions - AGL have notified that this was never considered.2 13 March 06 AGL launches a hostile takeover.