LPC

[Snoopy]

I thought company directors were tasked under the Companies Act to maximize share holder value?

They will be maximising shareholder value, for the major shareholder CCHL (100% council owned), who appointed them all.

Would it not be more beneficial for shareholders if the company were liquidated and cash paid out to owners?

Of course and this is what will happen, once those pesky minority shareholders are out of the way of course!

SNOOPY

[blackcap]

They will be maximising shareholder value, for the major shareholder CCHL (100% council owned), who appointed them all.



Of course and this is what will happen, once those pesky minority shareholders are out of the way of course!

SNOOPY

Love it Snoopy, love it. Maybe my initial statement should have read "all shareholders"

[winner69]

http://www.nzherald.co.nz/opinion/ne...ectid=11323630


Brian Gaynor: Port takeover bid raises important issues

[Snoopy]

I not finally made up my mind but I propose to ignore the take-over offer and then request the directors undertake a Expert Value Determination as is provided for in the compolsory aqusition provisions of the take-overs code.

The mechanics of compolsory aquisition are discussed on pages 5 and 6 of the Northington Partners report. A fish hook for hold-outs is if the expert valuation report is less than the CCHL offer then you will be forced to accept the experts lower price.

To quote from Brian Gaynor's article referenced by Winner:

"One of the frustrating aspects of the Takeovers Code is that a bidder can move to compulsory acquisition once they reach 90 per cent and CCHL has already achieved this because of its arrangement with Port Otago. However, if a bidder reaches 90 per cent, but gets less than 50 per cent of the outstanding shares, then the holdout shareholders can object and the Takeovers Panel must appoint another independent expert to determine the "fair and reasonable" value of the shares. This represents a viable option for Lyttelton Port shareholders who believe the offer is too low as CCHL needs to obtain more than 97.59 per cent to ensure no one can exercise this option (this is because CCHL and Port Otago are associate parties under the Takeovers Code as their pre-bid holdings are combined)."

I think perhaps I will sit on my LPC holding for now, to see what develops over the next week.

SNOOPY

[Snoopy]

Interestingly the lead author of the report, Greg Anderson from Northington Partners, is the same Greg Anderson who was lead author of a similar report published in 2006 by Crighton Anderson. Crighton Anderson subsequently merged into Northington Partners. 2006 was the last time CCHL made a formal bid for the whole company. Interestingly, back then they also used a discounted cashflow valuation when valuing LPC.

At least one copy of this 2006 valuation survives, in what I have coined as my ‘library of shame’ (a rather nondescript cardboard box in my spare bedroom). A comparison between the two offers is interesting reading, of which more later.

Here is my promised comparison chart between the Greg Anderson valuation in 2006, and the valuation by the same lead author in 2014

	2006	2014
Riskless Interest rate	5.75%	4.1%
Post Tax Market Risk Premium	7.0-7.5%	7.0-7.5%
Asset Beta	0.6-0.7	0.7-0.75
Equity Beta	0.92-1.08	1.00-1.07
WACC debt/equity/combined	4.8% / 11.1% / 8.9%	4.0% / 10.45% / 8.5%
Marginal tax rate Interest Income	33%	28%
Post Tax Nominal Cost of Equity	10.3%- 11.95%	9.95% - 10.0%
Debt Ratio	24%	30% (Northington Assumed)
EBITDA multiple 'this year' (Lyttelton)	11.1x	10.9x
EBITDA multiple 'next year' (Lyttelton)	10.7x	12.9x
EBITDA multiple 'this year' (Port Tauranga)	11.0x	16.5x
Annual Increase: Container Volume	3.75%	4.0%
Annual Increase: Container Price Growth	1.5%	1.5%
Annual Coal Volume	3.2 Mt	1.6 Mt
Stand Alone Enterprice Value	$297.776m	$358.300m
Number of Shares	102.261m	102.261m
Full Valuation per Share (mid range)	$2.30	$3.50

SNOOPY

[Snoopy]

Here is my promised comparison chart between the Greg Anderson valuation in 2006, and the valuation by the same lead author in 2014

	2006	2014
EBITDA multiple 'this year' (Lyttelton)	11.1x	10.9x
EBITDA multiple 'next year' (Lyttelton)	10.7x	12.9x
EBITDA multiple 'this year' (Port Tauranga)	11.0x	16.5x

Get your hands on the cash as soon as you can and get some POT .
Faster growing,better managed.

I would have a hard time refuting that POT is the best run post in the country. But I would argue that LPC have an impressive financial performance behind them too. In 2006 both LPC and POT traded on similar EBITDA multiples. In 2014 the multiple for POT is 50% greater. Is POT a 50% better business than LPC? I think the answer to that question, the question that a new investor in POT should ask, is far from obvious.

SNOOPY

PS The mid point EBITDA multiple for FY2014 at $3.50 is 10.9x, as per my table. But the offer price is $4.15 ($3.95 + 20c dividend). So that makes for an EBITDA multiple of:

(4.15/3.50) x 10.9x = 12.9x,

including a premium for control which is not specified. That is is substantially below the market figure for POT for FY2014, which at 16.5x does not include a premium for control.

[Snoopy]

Here is my promised comparison chart between the Greg Anderson valuation in 2006, and the valuation by the same lead author in 2014

	2006	2014
Number of Shares	102.261m	102.261m
Full Valuation per Share (mid range)	$2.30	$3.50

With hindsight views are always a bit dubious. That's because the alternative futures that might have happened are ignored. The actual result that happened, certain with hindsight, was not certain at the start of the forecast period.

Nevertheless 8.5 years of a business like LPC , with a strong Buffett style moat, is enough to even out the ups and downs of the business cycle. I want to take you back eight and one half years, before the GFC, to see what happened to those LPC shareholders who did not accept the CCHL takeover offer in 2006.

Dividends received from that time to date (including the about to be declared 20c special dividend) totalled 45.4c per share. For those who accept the takeover offer on the table at $3.95, the annual compounding rate of return can be worked out from the following equation:

$2.30(1+i)^8.5 = ($3.95+$0.45)

Solving for 'i' I get: 1.079. That means a compounding annual rate of return of 7.9% (net). With a tax rate of 0.3 (IOW a retained earnings rate of 0.7), that equates to an annual compounding gross return of

7.9%/0.7=11.3%.

Rather good over that long time period. It is clear those shareholders who did not accept the 2006 Crighton Anderson evaluated offer are now very well rewarded!

SNOOPY

[percy]

In hindsight those with foresight may have accepted the offer and reinvested in POT.!!????

[Marilyn Munroe]

The level of acceptances CCHL holds when the offer closes on Tuesday 23rd will tell you if the game is afoot.

Others with more at stake and with more resources than me will no doubt be examing the offer and the alternatives very closely.

Boop boop de do
Marilyn

[winner69]

I thought company directors were tasked under the Companies Act to maximize share holder value?

Would it not be more beneficial for shareholders if the company were liquidated and cash paid out to owners?

Mute and debatable point

Has anybody ever been found guilty of not carrying out that task successfully?