King Country Energy signed a heads of agreement today with Todd Energy to acquire Todd’s 50% share in the Mangahao Power Station for $70 million.
King Country Energy and Todd Energy formed a joint venture in 1997 and purchased the Mangahao Power Station. The 38MW hydro-generation plant produces an average annual output of 132GWh and is situated near Shannon in the Manawatu.
The agreement signed today remains subject to finalising the sale and purchase agreement, due diligence, an independent report required under the Takeovers Code and shareholder approval. If all are favourable, the deal will see King Country Energy become sole owner of the asset which will be funded by $33.76 million cash and 7.63 million new King Country Energy shares issued to Todd Energy at an issue price of $4.75 per share.
The share transaction would increase Todd Energy’s ownership of King Country Energy from 35.4% to 54.1%. The second largest shareholder in the electricity retailer, King Country Electric Power Trust, supports the transaction and would be diluted from 20% to 14.2% ownership.
King Country Energy CEO, Rob Foster, says the transaction will provide significant growth opportunities for the company.
“King Country Energy has been restricted in its retail growth for a number of years due to a static generation output. We are constrained by the fact that we only generate around 125GWh annually - well short of our current customer demand of around 210GWh.
“For many years we’ve been actively pursuing other generation options to increase our generation capacity and minimise our reliance on the electricity hedge market.
“This agreement clearly puts King Country Energy on a path for expansion and we’re forecasting solid earnings growth once the transaction is finalised,” says Mr Foster.
KCE Board Chairman, Brian Gurney, says the transaction with Todd Energy will allow the company to deliver increased returns to existing shareholders, while also restructuring and optimising the company’s balance sheet.
“Not only does this proposed transaction provide long-term security of supply for our retail business, it will also result in an increase in free cash flow per share and an increased ability to pay distributions to our shareholders in the future,” Mr Gurney explains.
Mr Gurney says the Board expects the workstreams required to complete the transaction with Todd Energy to take about 8 weeks. Once these are completed, the company will call an extraordinary general meeting for shareholders to consider the transaction. This meeting is expected to be held in early June 2012.