Hamish Rutherford: Tilt takeover shows the value of independent thinking


The looming $3 billion takeover of transtasman wind farm developer Tilt Renewables is an extraordinary result for a company which was formed out of TrustPower, and one that almost did not happen.

On Monday the company confirmed that it had reached a deal to sell to an Australasian consortium for $7.80 a share, roughly double what the shares were trading at before a sales process became public, and triple the value of two years ago.

For minority shareholders (about 85 per cent of Tilt is owned by Infratil and Mercury) the journey would have ended more than two years ago at a profoundly lower price had it not been for a spirited defence by the company’s independent directors against an attempt to take over the company.

The job of professional directors are often seen as nice work if you can get it; some would describe the jobs as sinecure, conferring status and financial benefit with little responsibility.

Even if those characterisations are unfair, examples of directors staring down major shareholders in defence of minorities are all too rare in New Zealand corporate governance.

Tilt is one such example.

In late 2018 a joint venture of Infratil and Mercury offered to buy the shares in the company they did not own for $2.30 a share, a roughly 8 per cent premium to what the stock was trading for on the NZX at the time, but significantly below the $2.56 – $3.01 that an independent report by Northington Partners claimed.

Undeterred, Infratil ran a forceful campaign to try to convince enough of Tilt’s shareholders to accept the deal.

Over a number of weeks, Infratil repeatedly wrote to shareholders warning that its offer price was final and would not be raised, that Tilt needed to raise cash so anyone who did not take part risked dilution of their shareholding and predicting the shares were unlikely to trade above $2.30 any time soon.

The chair of Tilt’s independent directors, Fiona Oliver, a former corporate lawyer who had worked extensively in funds management before becoming a professional director, wrote back repeatedly urging shareholders to ignore Infratil and its statements, pointing to the potential of the wind farm developer.

The campaign (and defence) reached a snarky peak in late October 2018 when Infratil issued a statement explicitly pressuring the independent directors to change their recommendation.

Infratil said a market update from Tilt (which raised the company’s profit guidance but lowered the carrying value of Tilt’s assets), amounted to a writedown which should see Oliver and her colleagues “urgently revisit” their recommendation so shareholders could “make a fully informed decision” on the offer.

“Infratil believes the Independent Directors of Tilt Renewables have fundamentally understated the risks associated with the business by taking an overly optimistic view on the outlook of the renewables sector in Australia and New Zealand.”

The implication of the letter was that not only were the independent directors wrong, but also that their position was not serving the best interests of minority shareholders.

Oliver responded in terms which were every bit as forceful, claiming the Infratil statement “contains errors and omissions”.

She pointed to three errors she believed were in the Infratil statement, dismissed the significance of the items Infratil claimed was material, and accused the infrastructure fund of being “selective”.

Infratil had pointed to elements which it believed should see the value fall, it overlooked a profit upgrade and made no hint that the offer should be increased.

While the language remained professional, it amounted to both sides questioning the quality of the work of the other.

Between warring rivals this is not at all unusual in corporate life, but remember that Oliver had to sit on the board of Tilt alongside the likes of Bruce Harker, who has worked at Morrison & Co, Infratil’s managers, since the fund was floated in 1994.

While the course of history would suggest that Oliver and the other directors were clearly right to take the stance that they did, consider the picture at the time.

Investors were already coming to the view that electricity generation would have to change considerably to meet climate goals (particularly across the Tasman), but Australia’s policies on renewables subsidies were erratic as Canberra cycled through prime ministers.

The independent directors were not only clashing with their board colleagues, they wererunning the risk that had the company’s shares drifted for several years, shareholders might have said they should have recommended the offer. The pressure to bend would have been significant.

On Friday Jason Boyes, who will become Infratil’s chief executive from the start of April said the performance of Tilt since was “astonishing”. Had anyone realised at the time what Tilt would be worth “we would have paid more”.

He denied Infratil had been dismissive of the independent directors at the time, saying relations had remained professional and the positions were simply “firm”.

While he did not believe the company would have acted differently with the benefit of hindsight, the independent directors had done a great job for shareholders. “They performed exceptionally well.”

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