LPC

[Snoopy]

Snoopy wrote:
"On a stand alone basis the highest price I can justify is around $2.10 (based on a prospective PE of 20) discl: hold LPC, but not planning to buy more."

Snoopy. Here we have a stock that after meticulous and thorough investigation you value at $2.10. I have sufficient respect for you and your methods to accept this figure as most probably being reasonably accurate. Now, LPC carried on climbing to exceed your valuation by over 25% before it fell away in a downtrend. This is only to be expected - we all know that the market tends to overshoot value, whether it is heading up or down.
Question :- How much above your valuation would a stock have to go before you considered it a Sell? To me, you are in the process of giving hard-won profits back to the market because you appear to have no exit strategy.

Phaedrus, my exit strategy is to be taken out by majority shareholder Christchurch City Holdings. I hope it won't happen, as that means more work for me checking out replacement investments when I am quite happy with what I have. But I am realistic enough to know that this is my probable fate, if/when CCHL and Port of Otago get their heads together.

CCHL has been buying shares on market earlier this year at $2.20. Operationally the performance of LPC is improving since CCHL made their first takeover offer at $2.20 in April 2006. So I am fairly sure the clean up price will be higher than $2.20. I think the downside to the LPC share price is very limited from here. We are looking at an investment almost as capital stable as cash. Granted the upside is limited too. IMO, LPC is near fully priced on a stand alone basis *without any takeover premium*. Yet as I said in that post you quoted from:

"But two years ago, as now, the real value in LPC is not on a 'stand alone basis', but how it can fit into a 'great southern ports' alliance, with 15% shareholder Port of Otago Limited."

I remember some broker valued LPC earlier this year at around $2.70 on a merged company basis. I suspect that $2.70 is pushing the envelope. But in this market, even a takeout price of $2.40 would be a good result. I might have been tempted to take the money and run if I could find another port style infrastructure investment that was significantly cheaper than LPC. So far I haven't found such an investment. So I'm staying put.

SNOOPY

discl: hold LPC

[Snoopy]

An LPC press release noted:
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INCREASING COAL VOLUMES FOR LPC

Coal volumes at Lyttelton Port of Christchurch (LPC) are expected to increase by up to 1.3 million tonne per annum, over the next three years, thanks to a new agreement between Solid Energy Limited and Pike River Coal Limited.

The 18-year agreement will begin late 2008 and the full financial implications for LPC will be advised once they have been fully determined.

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Snoopy commented
"Add that extra 1.3m tonnes to the maximum tonnage achieved so far (2.5m tonnes in FY2006) and we get 3.8 million tonnes. That is well within the capacity of what the current plant has done already - on a monthly basis - with no changes. Consequently I dispute your suggestion that a 'huge investment' will be needed."

Fanny 22 retorted
"As I stated before there is a shortage of stock pile space on the current land available, this problem is highlighted mainly because of all the different piles required for the different grades of coal already being stockpiled. So, when Pike River’s coal comes on line this will just add to an existing problem not enough room."

and Snoopy came back:

Finally I find it hard to believe that LPC would take on Pike River Coal's exports, knowing they had insufficient land to do the job. Of course it would be easier if they had more land.

2008 LPC results are out and buried in there MD Peter Davie made the following comment on coal:

"Our coal volumes were on target for the year at 2.2 million tonnes. Our coal operation is the biggest in New Zealand, and coal will become an even more important export commodity for us in the near future. The agreement between Solid Energy New Zealand and Pike River Coal which facilitates Pike River coal exports from Lyttelton will see up to 1.3 million tonnes of additional coal per annum through Lyttelton by the end of the 2010 financial year. To accommodate that growth we are currently investigating options for expansion of our coal facilities."

I guess I take back everything I said Fanny 22, or should I say Peter Davie - in drag!. The cover is blown so you might as well admit who you are now! Looks like you are right on the button with the need to upgrade the LPC coal facilities - to an unspecified level!

SNOOPY

[Snoopy]

I couldn't let the 2008 result go without making a couple of comments. Superficially the result is O.K. as LPC have beaten their forecasts. Margin (that's normalised net profit divided by normalised revenues) continues to decline though, down to 12.4% from 12.6% last year.

Five years ago the margin was 17.4%, and overall profits were higher on 25% less turnover.
Perhaps that is one of the reasons Chairman Roger Fisher tacked this ensuing comment on to the end of the press release!

"LPC continues to believe that the present situation within the New Zealand port industry is not sustainable in the long term. We still espouse the view that to achieve optimum returns on assets port rationalisation is necessary."

Yet, LPC's new board member elected at the last AGM, the legal expert on corporate restructuring and business recombination - David MacKenzie - has already resigned!

Ostensibly this is to take up the position of Chairman designate of Christchurch International Airport Ltd, a position he will assume in October 2008. However, surely a man with the experience and ability of MacKenzie has the ability to take on more than one directorship at once?

SNOOPY

[Scuffer]

So Fanny 22 you are Peter Davie, Snoopy has blown your cover but I reckon that Snoopy is the chinaman hiding in the bush he has to be Hutchisons in disguise, come on Snoopy fess up an big fella fess up too.
You guys have had me wondering for ages.

[Snoopy]

Phaedrus, my exit strategy is to be taken out by majority shareholder Christchurch City Holdings. I hope it won't happen, as that means more work for me checking out replacement investments when I am quite happy with what I have. But I am realistic enough to know that this is my probable fate, if/when CCHL and Port of Otago get their heads together.

Arrrgh! I could be on my way to being taken out! This announcement today.

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KEY SOUTH ISLAND PORTS LOOKING TO JOIN FOR A SUSTAINABLE FUTURE

Joint statement from Port Otago Limited Chairman, John Gilks and Lyttelton
Port Company of Christchurch Chairman, Rodger Fisher.

"Port Otago Limited [POL] and Lyttelton Port Company of Christchurch [LPC] have today announced that a Memorandum of Understanding has been signed to explore a merger of their respective port operations.

A steering group representing both companies has been established to work with an independent advisor to explore the potential benefits and recommend a path forward. The interests of all stakeholders will be considered throughout the process.
This is a major step forward, however, whilst there is much support for this process from the two Boards, it must be emphasised that this is the first stage and there is significant work to be done.

The focus is on operational integration to strengthen the performance and future of both companies. The Boards believe that significant efficiencies and other benefits that could not otherwise be achieved will result from the proposed integration.
A key element with any future structure is that each port will retain ownership of its core physical assets [such as wharves and land]. This is recognised as being of significant importance not only to shareholders but to local interests.

Core port assets will remain in local control. To achieve this, the structure being considered involves the legal separation of the infrastructure assets from the operations and commercial activities that occur at each port.

Key stakeholders including staff, unions and shareholders are being briefed and will be kept informed on progress.

The integration of the operations of POL and LPC would result in:

- Co-ordination of future expenditure to avoid duplication
- Reducing the environmental impacts through co-ordinated road and rail use
- Increased productivity at each port
- Joint development of new services
- Significant efficiencies being achieved

The need for port rationalisation within New Zealand has long been recognised. This investigation takes up that challenge.

It will address both the interests of stakeholders and any legal obstacles to integration.

An operational merger such as this could help future proof both ports and it is important for both LPC and POL to continue contributions to the economy at the same or better level than currently.

Customers have specific requirements that necessitate long-term infrastructure worth millions of dollars and an operational merger could potentially allow for co-ordinated port development.

POL Chair John Gilks and LPC Chair Rodger Fisher are confident that there is a robust process in place to ensure both companies give serious consideration to how they could work together in the future in the interests of all stakeholders.

The Chairmen of the two companies are enthusiastic about the signing of the MoU, which is the first stage of this process. They are also committed to investigating all the options; the potential challenges and benefits, and then recommend an appropriate path forward.

It would be inappropriate for the companies to make any further public comments during the investigation process."

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SNOOPY

[airedale]

Hi Snoopy, I don't mind being taken out as long as the price is right:o

[Hoop]

STAND: LPC: STAND IN THE MARKET - Lyttelton Port Company Limited 09:00a.m.

LPC 21/11/2008 STAND REL: 0900 HRS Lyttelton Port Company Limited (NS) STAND: LPC: STAND IN THE MARKET - Lyttelton Port Company Limited URGENT COMMUNICATION Memorandum To : NZX Market Participants NZX Data Distributors From : NZX Client & Market Services Date : Friday, 21 November 2008 Subject : Stand in the Market - LPCY Message: STAND IN THE MARKET - Lyttelton Port Company Limited Hamilton Hindin Greene Limited has received instructions to stand in the market to acquire up to 2.536 million (2.48% of the shares on issue) ordinary shares in Lyttelton Port Company Limited at a price of $2.75 on behalf of their client, Christchurch City Holdings Limited ("CCHL"). This stand in the market will be conducted using a Temporary code in Trayport as provided in Rule D10.7 of the NZX Participant Rules. The stand in the market will commence at 11.00am under the Trayport code LPCY. The settlement code will be LPCY. Pre-Open will commence at 10.00am. Normal Trading will commence at 11.00am. The following conditions apply to this bid: The stand will commence from 11.00am on Friday 21st November 2008 and will remain open until the earlier of: i) completion of the instruction; ii) 5:00pm Friday, 28th November 2008 The stand is subject to the following condition: Subject to further discussions with Custodial Service Providers, CCHL will buy up to a maximum of 5,000 shares from each shareholder on a first come first served basis, except where that leaves a shareholder with less than 5,000 shares, in which instance, the remaining shares are also included in the offer. This is to be monitored via shareholders' CSN numbers. Notes: The requirements of Rule D10.7 are designed to ensure that retail investors have the opportunity to participate in substantial acquisitions. Accordingly CSN requirements relating to entering orders into a stand will be the same as for "general" trading, i.e. those at Participant Rule 11.4. and other legitimate exceptions from the requirement to enter a CSN. However, NZX will disallow the use of the "m" (multiple) flag to allow for adequate monitoring of the above stand condition. Where this condition is not met and the broker has not contacted NZX and satisfied it that the objectives of Rule D10.7 have been met, NZX will reverse trades. Failure to meet undertakings given to NZX in relation to this will constitute a breach of Good Broking Practice. Short selling shall be governed by the standard rules relating to that issue in force from time to time. These rules are currently at A10.14 of the Participant Rules. There are no price escalation terms for the stand. NZX Firms should note that trades executed in the temporary Trayport stand security are traded under a quotation basis of 'XX". This means that Claims of Delivery may not be made until such a time as NZX confirms these trades following acceptance processing. A copy of the statement released by Hamilton Hindin Greene Limited is attached for your information. Please refer to the information on CSN use provided in the Guidance Note - Stands in the Market. Please do not hesitate to contact NZX Client and Market Services on (04) 496 2853 or lcr@nzx.com if you have any queries. ENDS End CA:00173168 For:LPC Type:STAND Time:2008-11-21:09:00:15

[Snoopy]

Hi Snoopy, I don't mind being taken out as long as the price is right

Is $2.75 enough Airedale? CCHL are in the market today offering that, looking to take 2.5m shares out of the market. I can't figure out why, given they already control LPC in all meaningful ways. Perhaps they are just using the general market volatility to shake out a few weak shareholders and top up to the maximum extent allowed under the sharemarket creep provisions? In any event if CCHL do proceed with a full takeover offer in the new year that potential offer has just had a floor put under it at $2.75.

The $2.75 applies if you have 8000 shares or less. If you have more than 8000 shares the $2.75 is offered only on the first 5000 of your shares.

I have run a very quick back of the envelope calculation on a valuation for LPC. From page 45 of the 2008 annual report EBIT is $19.811m. Add back depreciation and amortization of $11.077m and I get EBITDA of $30.89m.

I have kept my Crighton Anderson report on the previous takeover offer made by CCHL. The 'mid point' EBITDA valuation used is 10, in other benchmarked takeovers in the industry.

There are 102.261m LPC shares on issue. This gives a back of the envelope takeover valuation per share of:

(10x $30.89m)/ 102.261m = $3.02 per share.

On that basis I would say the latest CCHL offer is probably reasonable, albeit at the lower end of the valuation scale. However, this valuation does *not* take into account any synergy benefits between CCHL and POL.

I wouldn't blame small shareholders from selling into this offer. But I have said earlier, I am in this to capture the benefits of the merger - so I am not selling myself.

Let's be clear, this is *not* a full takeover offer for LPC , although that may come. It is possible that if/when a full takeover offer is posted this will be on a pre-merger basis and I will be unable to realise any benefits of the LPC/POL synergy. This is a risk a I prepared to take, given that the offer on the table is at the lower end of the fair valuation range of LPC - as a stand alone entity.

Sitting tight for now, although I may be being influenced by the fact that if *I* accepted the takeover offer, I would still have the majority of my shares left!

What do others think, or am I the last man -errr beagle- standing?

SNOOPY

discl: hold LPC

[Scuffer]

Delist sell to Hutchisons it was the plan all along union tied up for next two and a half years profit up in tough economic climate get the deal done asap CCHL want to be a landlord nothing more the plan never changed.

[Snoopy]

Delist sell to Hutchisons it was the plan all along union tied up for next two and a half years profit up in tough economic climate get the deal done asap CCHL want to be a landlord nothing more the plan never changed.

Scuffer, the Lyttelton board are on record as saying they want to maintain ownership of the land the port rests on. Whether that is 51% ownership of the land and 49% ownership of the combined port operation as before is open to debate, but you may be right.

I would hope by now that CCHL have seen the folly of 'selling out cheap'. The bid today is tacit admission that their previous takeover offer was light, and that the original Hutchison deal was a bum one. Thanks to the hard work of LPC staff, the company is now worth $56.7m [ ($2.75-$2.20)x 103.2m ] more than it was two years ago. That is a compounding return of over 12% per year in these tough times. Good stuff.

Well done to everyone involved, but I think we can do even better. So I won't be selling out at $2.75. In fact, any significant weakness after this offer CCHL closes on Friday and I will be looking to increase my LPC holding - again.

SNOOPY

discl: hold LPC