King Country Energy (KCE)

King Country Energy today announced its interim result for the six months ended 30 September 2010.

http://www.unlisted.co.nz/uPublic/un...cement_id=1789

Comments on Shareholder Approach
It has been brought to our attention that a company called Zero Commission NZ Ltd has communicated with some King Country Energy Ltd shareholders with a view of purchasing shares.

We are unable to comment on the nature of this offer or the company involved, however, as of 11am on the 1st of December 2010, the last share trade on the 23rd of November 2010 was at a price of $3.86 per share, compared to the offer being made by Zero Commission NZ Ltd of $3.30.

http://www.unlisted.co.nz/uPublic/un...cement_id=1807

Nice little earner over the years. The shares came free as they do the power to the bach, and have bought more since. Can't be too bad if the Todd family want to buy it.

A few little gems tucked away on Unlisted.

The offer made by Zero Commission Limited is an opportunistic one and should be ignored.

Zero Commission is a company owned by Phil Briggs who ran a company called Equity Research Limited. This ran a tip sheet in the 80's and its claim to fame was to predict the share market crash in 1987.

The company was subsequently purchased by Dorchester Pacific Limited.

The offer made, to my way of thinking is designed to transfer wealth to Phil Briggs and can be likened to the friendly gold buyers in Shopping Malls with their fake money and greasy offers to buy gold at low prices from the unwitting public.

KCE has the Todd Family as a cornerstone shareholder, is a defensive utility stock, paying a good dividend yield.

Give this offer a wide berth in my opinion.

King Country Energy Comments on Shareholder Approach
Media Release Attached.

http://www.unlisted.co.nz/uPublic/un...cement_id=1825

King Country Energy announces solid annual result
See attached media release.

http://www.unlisted.co.nz/uPublic/un...cement_id=1874

King Country Energy has recently proposed to purchase 50 percent of Mangahao Power Station. KCE argues this is a good deal for all shareholders. However, the numbers appear to tell a different story.

Since the deal is between a party that both has a shareholding in King Country Energy and an ownership stake in Mangahao (Todd), it is necessary to examine the total claims Todd and non-Todd shareholders have over the various assets to understand the deal. Todd currently owns 50% of Mangahao and 35.1% of KCE (which has 18750000 shares). KCE owns assets which can be split into three classes

Assets A: Kuratau (29GWh), Mohauiti (7 GWH), Piriaha (7 GWH), and Wairere (18GWH) power stations, with total annual generation of 61GWH, plus a distribution business.

Assets B: a 50% share in Mangahao power station (126GWH), the other 50% owned by Todd

Assets C: cash ($8m in the interim report, but the number doesn’t matter too much)

These numbers can be used to calculate the direct and indirect claims that Todd and non-Todd shareholders currently have over Mangahao and the various assets owned by KCE.


Todd non-Todd total
Asset A 35.1% 64.9% 100%

Asset B (Mangahao) 67.5% 32.5% 100%

Cash $2.8m $5.2m $8m



After the deal, KCE will own all of Asset A, all of Asset B, but will have (i) borrowed $25.76m to pay $33.76m to Todd and (ii) issued 7.63m new shares to Todd, valued at $4.75. This deal values Mangahao at $140m, so half is worth $70m. Todd will then have 54% of the shares.

Consequently, after the deal, (i) KCE will have $25.76m debt, undertaken to transfer $33.76m to pay Todd; (ii) Todd will have 54% share of this debt, plus the $33.76m payment (giving Todd a total of $33.76 – 0.54*$25.76 = +$19.85m.) and (iii) non-Todd shareholders will have a 46% share of the debt, worth -$11.85m. Consequently, after the deal, the shares in the assets will be:


Todd non-Todd total
Asset A 54.1% 45.9% 100%

Asset B (Mangahao) 54.1% 45.9% 100%

Cash $19.85m -$11.85m $8m

The difference between the two shareholdings makes the real nature of the deal clear. At the end of the transaction, Todd will have sold (67.5% - 54.1%) = 13.4% of Mangahao to non-Todd shareholders. In turn, it will have been paid $19.85m- $2.8m = $17.05m in cash, and (54.1% - 35.1%) = 19% of Asset A by non-Todd shareholders.

These results suggest the deal is much better for Todd than non-Todd shareholders. If the deal proceeds, non-Todd shareholders will gain 13.4% of Mangahao. If Mangahao has a value of $140m, this share of the asset has a value of $18.76m. To get this asset, non-Todd shareholders are paying $17.05m in cash and 19% of Asset A . This values the 19% of asset A at $1.7m, or the whole asset at under $10m.

This deal does not appear good for non-Todd shareholders, as it seems to ascribe an extremely low value to the non-Mangahao assets of KCE. It seems scarcely believable that 4 small power stations plus all the distribution business of KCE are only worth $10m. Put this is context. Mangahao produces on average 126GWH per year and is valued at $140m or $1.11m per GWH; the 4 small stations produce 61GWH and are valued not at $67 million, which they would be valued if the price were $1.11m per GWH, but at only $10m. The distribution business is ascribed no value, or, to be more accurate, is likely to be ascribed a negative value.

If the value of Asset A – all the non-Mangahao assets of KCE - is $67m, the 19 percent being given to Todd as part of the settlement is worth $12m, not the $1.7 m it appears to be valued at. (This still values the distribution part of the business at zero.) It seems therefore, that Todd may well being overpaid some $10m by non-Todd shareholders to buy half of Mangahao power station.

The trick to the deal, of course, is not the $70m purchase price, but the issue of 7 million shares to Todd at $4.75 - a price that is much less than the net asset value of KCE if Mangahoa is valued at $70m (unless, of course, the 4 power stations really are only worth $10 m). This deal is not being given to all shareholders, as the KCE constitution legally over-rules the normal (?) pre-emptive rights of all shareholders to be issued new shares on the same terms. Thus the financing aspects of the deal are crucial. If KCE paid Todd $70m in cash and there was an issue of shares to all shareholders at $4.75, the deal would not favour Todd over non-Todd shareholders.

As a small shareholder I am not sure what to think. Purchasing Mangahoa seems good. Purchasing Mangahoa with a financing deal that favours 1 large shareholder over thousands of tiny shareholders seems unsavoury. Purchasing Mangahoa with a financing deal that favours 1 large shareholder over thousands of tiny shareholders and then failing to explaining the situation in plain language seems very unsavoury.

But perhaps the biggest surprise is why the King Country Electricity Power Trust (20% shareholding), with 2 directors on board, seems so keen on the deal. They of all players could have held out for a better price: even raising the price of the new shares to $5.50 would have improved the deal for non-Todd shareholders and for the Trust. Hopefully the independent report will have a valuation of the 4 power stations so we can find out whether the directors of the Trust are prepared to sell their assets for under half their valuation, or whether the assets really aren't worth much.

Man of Gloucester (Andrew Coleman)

KCE has now sent out shareholders an independent report on the proposed purchase from Todd Energy of the 50% of the Mangahoa power station that it does not own, for $70m, paid for with $33m cash and the issue of 7.6m shares at $4.75 each

The report is by Simmons Corporate Finance.

KCE owns four small power stations with total generation of 61GWh, a distribution business, $11.2m in cash minus $0.8m in derivatives , and half of Mangahoa (126GWH).

Simmons puts the value of the whole of the company as $101.4 - 119.9m, including the $10.4m in cash (p40)
It puts the value of KCEs half stake in Mangahoa as $63m -74m (p47.)

Subtracting one from the other, and deducting 10.4m, this means the value of the 4 power stations plus the distribution business is $28 - 34.6m


So.....their half of Mangahoa (63 GWh) is worth $63 - 74m
The rest of the business excluding cash (61 Gwh) is worth $28-34, less than half as much.

Does this mean the rest of the business is much less profitable? Fortunately they provide EBIT and profit for the whole company and the whole of mangahoa. Subtracting half of mangahoa gives the profit for the rest of the business.

the profits have oscillated quite a bit over the last five years (in part because of the way derivatives are valued).

EBIT 2008 2009 2010 2011 2012 total

Whole company

8277

5075

2382

7154

7579

30467

half mangahoa

1562 5400 3391 2105 2993 15451

rest of business

6715

-325

-1009

5049

4586

15016

Over five years, half of Mangahoa has earned $15.4m before interest and tax and is valued at $70m
Over fice years, the rest of the business has earned $15.0m before interst and tax, and is values at $30m

This seems rather odd, even though it is very convenient for Todd and not very convenient for non-Todd shareholders
In terms of Cashflow, the situation is similar: half of Mangahoa is $13.2m, rest of the business is $16m
In terms if profit, the situation is similar: half of Mangahoa is $9.3m, rest of the business is $12.2m

These aren't numbers that automatically make you think that mangahoa at the moment is worth twice as much as the rest of the business.

This is important. Simmons argue that the acquisition makes sense, and they say the price is OK even though Todd is issued shares at a 12-26 percent discount to estimated value given the valuation given above. Since non-Todd shareholders are having their shares significantly diluted (from 64% to 46%) this means non-Todd shareholders are getting too little for the rest of the business. However, the discount is much bigger if the rest of the business is worth more than Simmons says: and their own numbers suggest that the rest of the business could be worth twice as much as the number they publish.

Any comments? Anyone know why the rest of KCE is worth so little? Any one know why the King Country Energy Trust is so keen for the purchase to go ahead when Todd seems to be getting a bargain?

Man of Gloucester

Hmm, it looks pretty inevitible that Todd will succeed in its reverse takeover. No-one seems to disagree they are getting a good deal, picking up control while being issued new shares at a considerable discount to net asset value.

One issue that has been clarified for me: the low value placed on the existing non-Mangahoa assets reflects
(i) much higher forecast maintenance cashflows for the 4 small power stations than for the Mangahoa, hence lower profitability in the future than we have seen in the last five years. (ii) a divergence between retail and wholesale prices after 2016 that will lower the earnings of the distribution business, but not of Mangahoa.
My complaint that the valuation of the 4 stations is too low based on past earnings is therefore partly answered.


I can't say I am overly impressed with the directors and managers, it doesn't seem like they have gone the extra mile to extract a higher price for new equity injected by Todd. Even another quarter would have reduced debt by nearly $2 million (so non-Todd shareholders would have 1 million less debt, and half a cent greater annual earnings) while only raising the net cost to Todd by $1m. It remains to be questioned why the directors of the King Country Electric Power Trust were so keen to dilute their holding at a price lower than NTA, and thus lower their wealth. Holding out for NTA would have raised their potential income by $40000 a year, a small but not exactly non-trivial sum for a trust.

On the bright side, the Toddfathers may use creep provisions to buy up the small parcels that come on the market from time to time, increasing liquidty for those who want to sell. It remains a company with a very good dividend payment. The takeover is engaging in some financial engineering to lower tax payments to the government which will help accelerate the KCE debt reduction. And it probably stops management from building windmills or from finding other sources of electricity.

Man of Gloucester

King Country Energy announces interim result for the six months ended 30 September 2012.

http://www.unlisted.co.nz/uPublic/un...cement_id=2127

KCE decreases earnings forecast due to summer drought

https://www.unlisted.co.nz/Members/u...cement_id=2188

King Country Energy provides an update on the share buyback process:

http://www.unlisted.co.nz/uPublic/un...cement_id=2203

Thanks Armillary P C.

The statement says "following the award there was a reduction in equity of KCE".

The question is : "how much was the reduction in equity" ?
Will the company supply this figure ?

Presumably this figure divided by the number of shares in dispute (being 927,473) would provide a fair indication of the extra money that Todd Energy (sorry KCE) under Rob Foster were required to pay out to those shareholders who objected.

To take this a stage further, could this be taken as evidence that the local community who as ratepayers in the King Country (& as such small shareholders in KCE) were taken advantage of by the very company which professes to have the interests of their community at heart.

FOOD FOR THOUGHT !!

King Country Energy has announced their annual result:

http://www.unlisted.co.nz/uPublic/un...cement_id=2208

King Country Energy have posted their annual report and their June investor presentation:

http://www.unlisted.co.nz/uPublic/un...cement_id=2213

New Issuer Profile for KCE here:

http://www.unlisted.co.nz/uPublic/un...cement_id=2242

KCE named as a finalist in the Energy Excellence Awards:
http://www.unlisted.co.nz/uPublic/un...cement_id=2247

KCE AGM presentation from yesterday:

http://www.unlisted.co.nz/uPublic/un...cement_id=2250

KCE confirms it will not raise published electricity retail prices this year:


http://www.unlisted.co.nz/uPublic/un...cement_id=2284

Interim result announced:

http://www.unlisted.co.nz/uPublic/un...cement_id=2313

Interim report and shareholder update posted.

Annual result announced.

KCE's Autumn shareholder update.

KCE's annual report and updated issuer profile have been posted.

Investor presentation from the CFO.

9 month results ending 31 December.

Amendment to results announced.

ASM presentation.

Listing on the NZX soon ? 8.2 % Gross Dividend yield

http://m.nzherald.co.nz/business/new...ectid=11442634

Quote:

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Originally Posted by kiora

Listing on the NZX soon ? 8.2 % Gross Dividend yield

http://m.nzherald.co.nz/business/new...ectid=11442634

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Funny I had an offer in the mail last week from Zero Commission.
Now actually a takeover by Trustpower.Likely to succeed IMO as KCE not very liquid
http://www.nzherald.co.nz/business/n...ectid=11539318

Quote:

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Originally Posted by kiora

Listing on the NZX soon ? 8.2 % Gross Dividend yield

http://m.nzherald.co.nz/business/new...ectid=11442634

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Well actually a takeover by Trustpower.Likely to succeed IMO as KCE not very liquid
http://www.nzherald.co.nz/business/n...ectid=11539318