Mercury Energy has teamed up with a Queensland pension fund for a $3 billion takeover of Australasian wind farm developer Tilt Renewables, which has seen its value almost double in just over three months.
Tilt said today it had entered into a scheme implementation agreement with a consortium of Powering Australian Renewables (PowAR) and Mercury which, subject to shareholder and regulatory approval, would see shareholders paid $8.80 a share, valuing the company at $2.96b.
Tilt said it expected to put the proposal to shareholders in around four months. The proposal is subject to High Court and other regulatory approvals.
If completed, the deal would see Tilt’s valuation almost double since early December when Infratil, which owns around two thirds of the company, announced it had hired Goldman Sachs to undertake a review of its investment, after receiving “strong interest” in the stake.
Shares in Tilt immediately jumped more than 17 per cent on the news to $7.60. The day before Infratil announced it was reviewing its ownership, Tilt’s shares closed at $3.92.
Mercury knows the Tilt business well. As well as owning almost 20 per cent of Tilt Renewables, its chief executive, Vince Hawkesworth is a director and was chief executive of Trustpower when Tilt was demerged from the Tauranga-based generator.
Tilt was spun out of Trustpower in 2016 and at the time was valued at less than $700 million, a fraction of the value of the combined business.
Less than five years later the proposal suggests Tilt is worth more than Trustpower, which has a market capitalisation of around $2.55b.
Hawkesworth said the public markets had not appreciated the value of the platform Tilt had built to identify which were the best opportunities for developing new wind generation.
“There’s [been] a large underestimation of the really good job that the Tilt team have done on the back of the platform that Trustpower built to identify really good investment opportunities.
“When you look beyond the operating assets in Australia, and in New Zealand, they have identified really good projects,” Hawkesworth said. “Clearly, that’s what a number of teams determined.”
According to reports, the Mercury and PowAR (a subsidiary of Queensland Investment Corporation) offer was chosen over bids from Australia as well as Canadian pension funds.
Mercury invested in Tilt in 2018, paying $144m for a stake which has more than tripled in value in three years.
Mercury will pay $770m for Tilt’s New Zealand business. However the value of its existing stake is $585m meaning the deal will see its debt increase by $185m.
Separately, it launched a new “green bond” offer under which it was seeking to raise $200m.
Mercury said Tilt’s New Zealand wind generation, combined with Turitea wind farm, which is currently under construction, would represent almost 5 per cent of New Zealand’s total generation.
“Throughout this transaction, Mercury has worked to keep these New Zealand assets under New Zealand ownership. Completion of this transaction will position Mercury to make an even more significant contribution to New Zealand’s decarbonisation goals.”
The transaction will deliver a major payday for Infratil, the Wellington-based investment fund which itself has been the subject of takeover interest. Infratil’s stake in Tilt under the proposed terms is $1.93b; at the end of September 2020 the stake was valued on Infratil’s books at $704m.
Days after the Tilt review was announced, AustralianSuper confirmed it had made a non-binding bid for Infratil valuing the entire company at $5.4b, which was rejected.
The deal is also likely to mean another sharp increase in the fees Morrison & Co, Infratil’s manager, is likely to receive. In a statement, Infratil said the transaction was likely to bump up the 2021 international portfolio annual incentive fee accrual to $217m (from the $147m it previously indicated), as well as an estimated $107.1m in realised incentive fees.
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