Morningstar | Infratil and Mercury to Privatise Tilt; No Change to FVE
Narrow-moat-rated Infratil announced plans to make a takeover offer for wind farm operator Tilt Renewables at NZD 2.30 per share. It will make a formal offer in September 2018. Infratil already owns 51% of Tilt, which was spun out of Trustpower in 2016. If all goes to plan, Infratil's stake will increase to 80.01%. Mercury NZ will maintain its 19.99% stake in Tilt and nominate one director.The additional 29% stake will cost NZD 209 million, to be funded by cash and existing debt facilities. Tilt has a large development pipeline of renewable energy projects, mainly in Australia, and will require large ongoing equity injections. This is what Infratil wants - to deploy capital to its preferred themes of renewable energy, retirement living and data centres. But we're not convinced that Australian wind farms will provide good returns on investment, given low barriers to entry, a likely depressive effect on wholesale electricity prices when wind conditions are good, and the inability to cost-effectively store power until prices improve. Overall, though, the acquisition is not material enough to shift our view. At current prices, Infratil is trading 10% above our unchanged NZD 3.10 fair value estimate.
We'll incorporate the acquisition into our earnings forecasts once the takeover completes.
Infratil and its subsidiaries own and operate infrastructure and utility businesses and investments in New Zealand and Australia. Co. and its subsidiaries operate in six business segments: TrustPower, Wellington Airport, NZ Bus, Infratil Energy Australia, Infratil Airports Europe and Other. Trust Power is Co.'s renewable generation investment; Wellington International Airport is Co.'s Wellington Airport Investment; NZ Bus is Co.'s transportation investment; and Infratil Energy Australia (including Perth Energy) is Co.'s non renewable generation investment. The principal investments in the Other segment are Co.'s interests in Z Energy, Metlifecare, RetireAustralia and ASIP.
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