re: inside business transcript
Transcript IFM mulls counter-bid for Pacific Hydro
Date : 03/04/2005
Reporter: Alan Kohler
ALAN KOHLER: The sale of Pacific Hydro has been a pretty unusual affair so far. Frustrated by limited investor support in Australia and confronted by the decision of a 16 per cent shareholder to sell out, the company put itself up for auction last year.
This week Spanish outfit, Acciona, finally bid $4.50 a share, with the board's blessing.
Now the $5 billion industry super fund controlled investment company, IFM, which owns about a third of Pacific Hydro, says not only is it not a seller, which dooms the Spanish bid to fail, but it might be a counter-bidder itself.
I spoke to IFM's executive chairman, Gary Weaven.
Gary Weaven, did you agree with Pacific Hydro's board's decision to put the company up for sale last year?
GARY WEAVEN: Oh, it wasn't something that we initiated and it wasn't something we were part of.
ALAN KOHLER: Did you agree with --
GARY WEAVEN: We weren't asked to agree. It wasn't our decision. They made the decision.
ALAN KOHLER: I know, but what did you think of it?
GARY WEAVEN: From our point of view we didn't really see the need for it, from our point of view. I can understand their actions, though.
ALAN KOHLER: Industry Funds Management [IFM] own more of Pacific Hydro than Rupert Murdoch owns of News Corporation, so you could have stopped it?
GARY WEAVEN: The independent chairman, independent directors, made that decision, and we respect their right to make those decisions.
ALAN KOHLER: It's been reported that part of the reason for them selling was what they call a dysfunctional share register, which seems to mean that, among other things, that IFM was not wholly supportive of the company. So is that true?
GARY WEAVEN: No, that's definitely not true. What is true, I think, is that in earlier ownership structure there was some genuine speculation about whether the industry fund interest might be diluted for portfolio balancing reasons.
But since we've had the role, since DAF has been owned entirely by Industry Funds Management, we have made it absolutely clear to the chairman and the board that we were a very strong supporter and intended to stick with the company and, if anything, increase our position.
ALAN KOHLER: In fact that stake was put up for sale, wasn't it, with three stockbrokers - JP Morgan, Tolhurst, ABN AMRO - between two and four years ago?
GARY WEAVEN: There was some, I think there was some tentative questioning of the market about a stake. Not the stake, a stake.
ALAN KOHLER: So, what, part of the stake?
GARY WEAVEN: Yes, to my knowledge, to my knowledge --
ALAN KOHLER: That was before you were involved?
GARY WEAVEN: That's correct. That's before we had ownership of that fund.
ALAN KOHLER: Has IFM had any offers for its stake lately?
GARY WEAVEN: No, we haven't.
ALAN KOHLER: Have you had, or do you have any misgivings about the board or the management at all?
GARY WEAVEN: No, we --
ALAN KOHLER: Separate to the company itself and the assets that the company owns?
GARY WEAVEN: No, well obviously this process creates a certain amount of tension as, you could well expect. But, you know, we've never expressed dissatisfaction with the board or management.
ALAN KOHLER: Tension in the sense that you haven't wanted the process to happen?
GARY WEAVEN: Yes, and so inevitably, inevitably there is some tension about that.
ALAN KOHLER: So they had the process, Acciona of Spain won the board's support with a bid of $4.50, and the board includes IFM's two directors.
Now, you've said that you won't accept it, which essentially dooms the bid to fail. Where does that leave the recommendation of your two directors on the board?
GARY WEAVEN: Well, they had to act as directors, we didn't direct them as a shareholder. So we suggested to them that they should take their own advice and act on that advice, and that, presumably, is what they have done.
But we've also made it very clear, through them and directly to the company, that that didn't mean that we were a seller. In fact we were not intending to be a seller.
ALAN KOHLER: But do you really want IFM to be locked in as a minority shareholder in a listed Pacific Hydro controlled by Acciona of Spain?
GARY WEAVEN: No, we don't want that and I don't think Acciona would want that either, and that is why we are attempting to have a discussion, or we are having a discussion, and we are looking at our options to see what ways there are of avoiding such an unpleasant outcome.
ALAN KOHLER: One option would be for IFM to make its own bid for Pacific Hydro. What about that?
GARY WEAVEN: Well, we haven't ruled that out. We've never ruled that out and we've never made a clear statement that that's what we're going to do, but we're certainly considering it.
ALAN KOHLER: So has IFM got the funds to do it? I mean we're talking 700, possible $800 million. Is that funds available to IFM?
GARY WEAVEN: I think our clients, if anything, are short on deal flow, not short on cash. So I think that, you know, that's one of the things that really weighs heavily with us, that their desire to get their members' money placed in quality infrastructure assets. So I don't think cash is an issue.
ALAN KOHLER: So it is being considered?
GARY WEAVEN: It is being considered.
ALAN KOHLER: Obviously IFM is particularly interested in renewable energy, which is why you're in Pacific Hydro.
Is one of the reasons you think Pacific Hydro shares are under priced, at $4.50, that you don't think the low mandatory renewable energy target in Australia will last?
GARY WEAVEN: The main reason that we think it's difficult to value Pacific Hydro is that it's hard to put a cap on the potential size of the renewable energy industry worldwide. Australia is part of that answer. We don't really think that the Government's incredibly, you know, retrograde policy in this country can survive. But that's not the totality of the story; we see that this is a global industry.
ALAN KOHLER: You've been holding discussions with representatives of Acciona this week. What have you been discussing?
GARY WEAVEN: We talked about ways in which we might continue to have a long?term interest in these assets and/or other assets, you know, that Acciona might be involved in worldwide in the future.
You know, we're keen to be an investor. We're very conscious that anything that we did agree would need to be approved by the shareholders of Pacific Hydro. But we think it would be irresponsible not to explore those opportunities on behalf of our underlying investors, the members of industry super funds.
ALAN KOHLER: I suppose it would have been better if these discussions had taken place before they had made a bid, so that maybe there would be a joint bid?
GARY WEAVEN: We certainly would agree with that.
ALAN KOHLER: Is the tone of the discussion on the basis of, "Either we're with you, Acciona or we're against you as a counter-bidder"?
GARY WEAVEN: I don't think it's as black and white as that. I think that from our part, and I'm sure from Acciona's, we're attempting to have cordial discussions that can put all the options on the table.
They have constraints on them, as do we, as to what, you know, can be said, but we're very carefully looking now at putting a proposal to them. But we don't, at this point, have any strong view that we'll be able to reach an agreement.
ALAN KOHLER: Is it a possibility that you would look with Acciona at partnerships outside of Australia, with other projects that they have around the world, given the lack of, as you say, possible deals in this area in Australia?
GARY WEAVEN: Certainly, certainly that would be it. I mean, they're a fine international company, they've got a real interest in renewable energy, amongst other things, and so we would certainly explore that, as indeed we're exploring with other companies right now, and have been for sometime, other opportunities.
ALAN KOHLER: So how soon do you expect this to be resolved?
GARY WEAVEN: There are some time constraints imposed by the sort of bidding process that Acciona is working to, but really we don't have any particular expectations that this can be, you know, quickly resolved.
ALAN KOHLER: Just finally, during the process of the bid, you know, clearly this has gone on for months, you know, where the company - there has been a due diligence process and so on. At any time during that time did anybody, any of the bidders, or in particular the board and its representatives, come to you and say, "What are you going to do? What do you think about this? Are you going to be in and do you want to make a join bid? Or do you want to make a bid at all? " Did anyone talk to you?
GARY WEAVEN: There was some dialogue, there was some, you know, formal dialogue with the board and their advisers, and we said that we would be very happy to talk to prospective buyers, but that we wouldn't do anything to cut across the bid process that they were running.
Now, we did have some discussions during that period with other parties that I'm not going to name, but we were very careful to say that we're not going to cut across the process that the board had initiated, and it needed to run its course once it was launched.
ALAN KOHLER: Gary Weaven, we'll have to leave it there. Thank you very much.
