"Each business will be able to focus clearly on its strategic direction and core activities and both will be large and important operators in their sectors," chairman Mark Johnson told the Australian Stock Exchange this morning.
“All AGL Shareholders will hold two shares, one in each of the energy and infrastructure companies and over the long term, the combined value of these shares is expected to be greater than the share price of AGL before the demerger announcement.”
In buying Southern Hydro, AGL outbid Babcock & Brown and Origin Energy, both of which are believed to have offered significantly less.
“The acquisition of the generation portfolio of Southern Hydro provides significant balance for the energy business [and] the recent announcement of the Victorian electricity network decision, combined with the NSW gas network decision in July, provides a strong degree of cash-flow certainty for the network assets until 2010,” Johnson said.
“We’ve grouped complementary assets and businesses together to create two viable stand-alone businesses with growth potential. The infrastructure business will have an internal service provider business model with Agility an important component, providing asset management and growth. The energy business will continue to pursue integration opportunities across its retail and generation businesses, upstream gas investments and expansion of its existing businesses consistent with AGL’s current strategy.”
Southern Hydro operates 737MW of renewable energy plants across Victoria, New South Wales, and South Australia – including Australia's largest wind farm, the 91MW Wattle Point facility on the Yorke Peninsula of South Australia. Its 646MW of hydro power resources draw from nine separate catchment areas and provide peaking power to the Australian national grid.
Other assets include 62MW of hydro generation in NSW bought by Meridian for A$85 million in April 2001, the 540MW Southern Hydro assets purchased in May 2003, and several wind farm and hydro developments currently in advanced planning stages.
Meridian chief executive Keith Turner said the sale marked a successful outcome for Meridian and that his company’s first foray into the Australian market had also brought other long-term benefits for both Meridian and New Zealand.
“By developing wind energy on both sides of the Tasman simultaneously, we were able to create economies of scale which made large-scale wind generation economically feasible in this country,” Turner said.
“We are now at a stage where we are developing wind on a sufficient scale in New Zealand alone that achieves similar economies.”
The strong international interest shown in the Southern Hydro renewable assets was a “powerful endorsement” of Meridian’s strategy of focusing solely on renewable generation, he added.