The onshore wind resource in New Zealand is the best in the world. We think it's the best wind site in the country. Most other wind farms in New Zealand thirty five to forty forty five. Maybe this is fifty percent plus, so's it's an exceptional wind sit.
It's an independent wind generator, so it's not tied to the gentailis for example. It's also a pure play on wind energy.
Of climate change, we're likely to get more rain into where the hydro catchments are in this country and more wind into those areas that we're building wind farms.
Curer and welcome to shed Lunch, brought to you by Shasis. I'm Helen Madison, and today we take a look at the takeover offer for New Zealand Wind Farms by Gen Taylor Meridian. If you haven't heard, this share offer represented a value of ninety one million dollars and a premium of one hundred and seven percent to the company's share price at the close of trading on febru the eighteenth. There are a number of things riding on this, including
a shareholder vote in May and High court approval. Are we talking to both the chair of New Zealand Wind Farms Craig Stobo and Meridium CEO Neil Barclay to get the picture for investors about what the steel means. Before we get started, here's some important information.
Investing involves the risk you might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and here is current at the time of recording.
Welcome Craig. Great to have you in the studio, Thanks for coming in.
Good morning to you, Thank you for having me.
Now, the market seems to have quite liked the Meridian offer for New Zealand Wind Farms. The share price doubled. Probably fair to say it's been in the doul drums a little. Did you have any idea what to.
Expect, well know, in the sense of how the market would exactly react, But you're right. It went from twelve point one cents the day before then the announcement was twenty five cents, and it sprint it up to around twenty three twenty three and a half, so one hundred and seventy percent from the day before. But of course the market then takes a view on the certainty of that transaction, so they don't quite go to twenty five cents. They go to twenty three to twenty and a half
until they get more information, which is still forthcoming. So expect the share price to hang around the until we get certainty of the outcome.
We've got about twenty thousand investors on shares ease, which is about twelve percent. I think of your register, which is a fair chunk for a retail block. What do you think they brought into New Zealand wind Farms. There's quite a few loyal people that have been there for quite sometime. Why do you think it was attractive?
I think people came in with a couple of reasons. One is it's an independent wind generator, so it's not tied to the gent tailors for example. It's also a pure play on wind energy, and it's close to people. You can see the site, you can see the changes that are going on, and it's a very small company and it's pretty much four directors and roughly twelve staff, so it's you can wrap your head around what they're
trying to do. It's pretty simple to understand. People came in Originally all of them have come in for the dividends, but we signaled a couple of years ago that we were moving into a development mode and we ceased paying dividends. That upset a few of our investors, including the Chares. These investors but were very clear that we could not stay where we were. We had to redevelop the existing two blade turbines. As they age and they don't have a management contract, we can go and get new parts
because it's original technology which finishes and ceases. We's out in the twenty thirties or thereabout, so we had to make a decision to refurbish those or to go for a larger development, and we went for a larger development, and hence we paused dividends and then announced this major transaction with Meridian as our partner, which gave you one confidence that the pathway could be achieved with a very good partner and availability of capital and project expertise.
So it's just clarify there. So you've got a joint venture with Meridian to repower extend to really Hoe. Now to really Hoe is your biggest asset pretty much, and obviously what Meridian will get all the energy from you know, once it's redone. Now that's that's a pretty big undertaking and you needed, obviously their help to do that. I think it's over six hundred million. Would this upgrade be possible without.
Meridian and our view know, because we're at that stage, a forty million dollar valued company on the New Zealand Exchange with a five to fifty million dollar project in front of us. So we needed partners at several levels. We needed partners who would agree to buy the power at the end of the project, which is called a power purchased agreement a PPA. And we needed someone to
co invest with us in the project. So needed to be someone who could guarantee the power off take at the end and who had the skills to help develop the project. As that decision was made, we went to an ur request for proposals to the marketplace and Meridian came back worth a ten plus five off take agreement for the power at the end of the project.
What does that mean? Ten plus five so ten.
Years plus five more years, so fifteen years of guaranteed off take of the power from the.
And that's all of the powers.
And that's really important because if you get a credit worthy purchaser of the power generated by the site. When the project starts for ten to fifteen years, it means it's very bankable as a project. So banks are saying, well, i've got security of revenue coming through, I'm happy to make a loan to the company or the JV in this case to be able to facilitate the development of the project. And so those projects can be quite highly geared, so you can have a lot of debt in those
projects because of the security of that revenue stream. So that was very, very important. In addition, the partner had to demonstrate that they could develop the wind farm with us, and as it turns out, Meridian had been completing Harder Pucky further up the Spine North Island with another wind farm development, so they had credentials in development and they knew the logistics of trying to get a new farm
or extension up and running. And at the same time they said, well, we'll do all that, but we'd like to buy nineteen point nine to nine percent of the shares in your company. So we issued new shares with the Concenter shareholders to allow them to come in and become a real partner. Across several layers, and so they are able to provide us for the expertise for that part of the project for their fifty percent, then we had our fifty percent, which is still a big amount
of money for us to raise. So we were in the project process of also inviting equity participants to come in from around the world, and we've got amazing responses for those, and so we're going down the track of looking at crafting the final terms of what the equity
providers could give to us. When Meridian popped up and said, well, actually we like the whole thing, so can we buy all of your shares please twenty five cents And we announced that to the market after we've done our own internal thinking about what was a fair price for the company and what was in the best interest of our shareholders because we have choices to stay and develop with all the risks associated with that, or we can take a price today which recognizes all the work that the
board and the management team had done to get to this point, which was around all the risks that have to be managed and then the logistics to get to a final investment decision. And when you weigh those two things up, the board decided that it was in the best interests of shareholders to take the money today twenty five cents, so that's why the share price jumped so quickly from twelve point one to roughly twenty three cents today. So we have to go through a few things though,
to get to that shareholder vote, which is required. We need to get an independent appraisal so evaluation report, which would tell us tell us the company, the board and shareholders that this is in the best of the company because the share price offered reflects the value that the valuer thinks company's worth, and they'll give us a range,
I assume, like they do with other reports. A. Secondly, we've got to go through a process that's signed off by the court, so you have certain documentation you have to get out and we hope to get that out in the next few weeks and then there'll be a shareholder vote, hopefully in duing quarter. We're going as fast as we can, but that's the current timetable. So yes, it's it's a it's a process of thinking about your shareholders and what's in their best interests.
And you think this is better for them, I mean, you will be no longer the last or you will be the last independent.
Well, and it's not. It's not quite it's quite not quite true. I mean, there's several ways to think about this. The project keeps going. It's just done by Meridium, so you know, in terms of the generation needs of the country, it continues, it's just not done by New Zealand wind farms. But in terms of other independence, there's obviously the Manua are independent but are subject to it's a Commerce Commission issue, clearly.
But there's also Pioneer Energy in the South Island. I mean, so there are independents around there are still Okay, yeah, they're not listed. It's like it's probably what you're trying to say is that we don't have many listed independent renewable enerjury companies, but there are privately owned renewable companies in the for example, the solar space, and if you look at the Transper website, there is a long list
of possible projects yet to come to fruition. So I wouldn't rule out the possibility of others coming to the market if they think that's the best thing for a liquidity event. But you're right, at the moment we are the last independent listed one generator you know, so there's choices depending on your motivation to come up to New Zealand wind Farms. Was it the renewable play? Well, okay, you can continue with that. It's not going to be
a small company play. It'll be the Meridian play, which is you know, it's a very large listed entity on the stocks change.
Quite different. Yeah, Gentaylor compared to go.
As Gentata, so it's combined. You're right, it's not a pure production play. It has retail as well. I know you're right.
There are a few hopes to jump through. As you've just explained, what if it fails, what's the plan? So we've compilated that.
So that would require us to go back to where we are today head of all this process, and that would mean well, our view is that if the twenty five cents is not an off of, the share price won't be at twenty three cents. So that's one thing. Of course, people are at the share prices at twenty three cents or so today because of the prospect of twenty five cents in Dune quarter, So that would change. I think secondly, we would have to go back to
contemplating how we would raise dead inequity again. For our share of the project, and we've just in discussions with Meridian, agreed that if that was to happen, Meridian would fund our half of our fifty percent. So Meridian's got fifty percent of the project, we've got fifty percent. We need to fund half of our fifty percent, and so they've agreed for nine point eight million dollars to come in
and fund that. Now that's not our view of the value of that slice of our business, but it's a backup so that we can fund what we need to do. But it does mean down the track we'll need to go to the sheer market again to raise more capital.
Yeah, because that nine point eight.
Million that covers us for our you know.
We're near what's going to cost us it though.
Well, it gets us, it gets us through the initial initial stages, but we still need we still need bank project debt, all those other things need to happen. So it's a it's a more difficult outcome in the sense that it doesn't value and our view value that fifty
percent as much as the twenty five cents does. But it means we can continue and live another day and go out to the marketplace as we develop the other parts of our portfolio, how Nui in the South wai Rapa or other other development projects that are on the foot at the moment.
So how Nui that was what you brought from Genesis back in October twenty twenty four. How does that compare to this.
Well, it's another development opportunity in our view. So it has only twelve percent of the output of our current wind farm at to rehow so not the redevelopment one but the existing one. So it's small, but it has development possibilities to upgrade the existing Ennicon turbines and put and put more turbines on the same site. So we saw that as a great opportunity to improve the economics
of that site. And it was an asset that Genesis clear didn't want and so I'm very happy to take it over, which was a great a great acquisition for us Q four last year.
But doesn't Genesis get the power from that site? So what will happen if Meridian does well?
They have a contract with us, so the contract stays.
In place, right, So even though Meridian would potentially buy New Zealand wind farms, then they would be supplying Genesis with power.
From that absolutely just.
To finish off what would be your message for and using wind Farm investors.
So at this point in our history of the company, we have a twenty five cent offer from Meridian in front of us to purchase all the shares from our shareholders at twenty five cents as we go through this scheme of arrangement process in that in the documentation that will be pros and cons given to investors around why
you should or while you should not. But the question in our minds was the relative risks of both cash in the hand at twenty five cents, which we'll see what the independent value sees, but in our view as a fair price given all the work we've done today to get the developments up to this point in time, you could say there are other opportunities in front of us with the empowering and how Nui and our other sites, but there are also risks with those. Nothing is certain
about the future. We haven't got to a final investment decision yet for Drury, how and that requires us to look at all the logistics of the repowering, the civil engineering, the electrical engineering, the new turbines taking down the old turbines. There's lots of things to happen, right, and there's always
always risks for that outlook. So on balance, if the independent value agrees with us, then we think twenty five cents is a great outcome for our current shareholders and is unanimously supported by the Board of directors.
And there's no white knights in the wings? Are there?
If there are, the wings haven't flown to me, So I don't know.
So Craig from New Zealand wind Farms says there are no white knights in the wings. Why is Meridian so keen? According to Meridian CEO Neil Barclay, it's a pretty spectacular sight. Plus for him, there's pressure to make this deal happen sooner than later. I sat down with Neil Barclay to give investors the Meridian perspective. Neil, welcome to the studio.
Thanks hell you are leaving Meridian. I think at the end of June, when we think about this New Zealand Wind Farms scheme, if you like the in vestas are going to be looking at. Is this something you wanted to get across the line before you leave.
Yeah, it is. Look, when you take on a CEO roll like mine, you don't. You don't do it to create some sort of legacy. You do it to sort of work with teams and do some good things. But of late I have started to look back and think about the legacy that I might be leaving behind. And there's some things I'm super proud of. I think the way we've developed our retail proposition and Meridian is our standing.
We've grown our market share. We're almost double the size of the retail business in the last five six years. And in my time in the business, we've also built about six wind farms in New Zealand, couple in Australia, and with Teriri Ho we would have we would have produced enough new renewable energy to power about half a million homes and I think that's something that I'm very proud to leave behind.
To very hope is the wind farm near Palmerston North, which is really the crown and the jewel for New Zealand wind farms. If that the steel goes through, what does that do for what Meridian has I think you've got about is it eight wind farms.
We've got six operating wind farms in New Zealand at the moment. This would be our seventh, but it's also our largest, so it would increase the portfolio of wind assets by about thirty five percent. That's significant. New Zealand's Meridians largely are our hydro generator. Most of our generation assets are in the South Island, but this would bring our wind portfolio up to about twenty percent of our total generation. That's becoming quite meaningful.
Is their plans to extend that even further. I mean, what's there.
Yeah, absolutely, Look, we've got huge amount of renewable resources in this country and that's that's our future, that's our opportunity. So we've been working on build portfolio of options that we can develop, both wind, solar. We've even got a battery being built in North End right now. We expect to sign off on about a billion dollars of investment this this calendar year, which would include ter Aria and about three billion dollars by the end of this decade
and about ten billion dollars by twenty fifty. Is part of our efforts to help decarbonize the New Zealand economy.
Where does Soula fit with that? What's the ideal sort of percentage break down for those three types of energy?
Well, I think hydro will remain the mainstay of the New Zealand electricity system. We're so lucky to have it. It's so flexible, it's it's you know, it's.
The lately lags being down the lakes.
Can move around a wee bit. But what we what we know is as we build out more wind, solar and the geo thermal that's been built is very helpful as well. The risk of hydro shortfall actually reduces because we've got a more diversified generation fleet around the whole country. So that's really our future now. Solar has a strong part to play. What we've been finding of late, interestingly but not too surprisingly, is when we have those high, very calm weather systems that don't bring the rain, they
also don't bring the wind. Alternatively, solar is a really strong generation option at times like that. So we think solar complements wind, hydro and the GFM or we have in the system today and will ultimately get us to one hundred percent renewable electricity.
Because how often would you need to rely on, say, thermal, which is sort of coal and gas, well it was gas for a while anyway.
The amount of thermal generation in the New Zealand system has reduced from about well about thirty five percent of the total system needs fifteen years ago to about twelve percent today. So that's going down all the time. And we will burn less and less thermal fuel as we progress, as we build more wind, solar and decarbonize. But when we do need it, we really need it, yeah, and
that's like last winter and like this coming winter. And we've got a problem in this country because investments slowed down in the gas and domestic gas. And that's unfortunate because domestic gas it was a lot more is a lot less carbon intensive than burning coal. But what what's occurred is the investment hasn't gone in. We've got a short full of gas, so we're actually having to burn more coal in times where we have low hydrome flows. We will manage through that. It's probably a two to
three year sort of inch point, we're calling it. But as the new renewables, including projects like terrariy Hoe, come on stream, we'll start burning less coal again and just transition. It's inevitable we transition to close to one hundred percent electricity grit and that's going to happen probably overin the next fifteen years, next.
Fifteen years, right, Yeah, because this last winter was tough, and even your interim results just recently that really showed that you had so hedging that you had to do because you didn't have that gas coming on stream, and you had to pay for that because you had a loss I think was one twenty one million net loss. Com me to say, you know, a profit of one hundred and ninety one million the year before, quite a
big difference. Are you confident that, say investors looking at this now from the New Zealand wind farmer's perspective, that you can kind of mitigate that and not have quite the same thing happen or Yeah.
Look, Meridian, we're a renewables only energy company. We rely on Mother Nature. So when it doesn't rain, we don't have the fuel to generate to meet our customer commitment, so we have to buy generation from someone else, and so we plan for the type of event that happened last year. We carry a balance sheet is very very if you caught unleathered lun leavered, it's very flexible. There's a lot of capacity in the balance sheet to be
able to cope with a poor financial year. On the back of a really extreme weather situation that our you know, it was the driest period between April and August, sorry May and August twenty twenty four that we've ever seen. We've actually just gone into another dry It's been the driest period between December in mid March that we've ever seen. But we're still in reasonably good shape for the winter
and it's starting to rain now, which is helpful. But we've had a couple of really extreme where the systems. That's what we set our business up to cope with, and it doesn't put too much pressure on the business at all. We expect to get back to something more like normal going forward, and it wouldn't slow down our commitment to building new and your wal projects, and certainly wouldn't slow down a commitment to building Teleio.
Looking at Derera, how then it was a development project. What has been what still is at the minute, a fifty to fifty joint menture between you and New Zealand Wind Farms. You now want to buy the entire company and you have a twenty percent stake called Ready. When was it that you thought, oh, what's the point of us keeping going like this? Why don't we just take the whole going.
On a few months back, as we were moving through the project and as the JV partnership went to the market to assess what the level of debt the JV would have to incur would be, and the cost of that debt, became pretty apparent that given Meridians flexible balance sheet that we just referred to, we could borrow the
money a lot more cheaply than the JV could. And that was the value equation That meant that us taking a much larger stake in New Zealand wind Farms would make sense for New Zealand Wind Farms shareholders and ultimately from Meridian shareholders as well. It's a more efficient way to finance the project to make sure it gets delivered as quickly as we can.
And you obviously did a bit more due diligence before you made that call, and you were pretty happy obviously with what you saw.
Yeah. Absolutely, we think it's the best wind sight in the country. Why is that it's just the wind conditions that perfect it, or have about a fifty percent more than fifty percent capacity factor, So that means if you build it to produce a certain amount of energy, you'll get at least fifty percent out of that. Now compare that to say what they get in Australia late twenties, most other wind farms in New Zealand thirty five to
forty forty five. Maybe this is fifty percent plus. So's it's an exceptional wind site, very windy place as anyone from Palming North, Not that I.
Do, but I've been past it and it's always going that's for sure.
Yeah.
So it's a great site because of the existing wind farm there. We can leverage some of the roading and so forth that's already in existence, so there are some cost savings available. We're not at the point of commitment though, so there's still work to be done. There's still risks involved, and you never know for sure exactly what when you're going to get out of it until because until you've stand stood up the thirty nine turbines that will hopefully go into play in this particular wind farm.
Yeah, so we're talking thirty nine in a couple of stages. I think that is, isn't it.
No, No, that'll be built. Sorry, it's two separate parts of the property, but it will be developed as one.
Project, one project okay, and I mean the cost is still significant though I've seen figures of five hundred to six hundred million as well.
It'll be north of six million. So it's a huge project begun to take in. But it's you know, this is what we do. And we've built six of these so far, plus a couple in Australia. We know what, we know how to do it. We've got the experienced team and they will get it done. But there's still
some challenges in front of us. And to give you an example, just two days ago, within the wind farm, the existing wind farm its south there's an airways facility that communicates with planes flying over and around the region, really important piece of kit. We had agreed with the airways to reposition that that facility to a different high point in the region away from the wind farm. Turns out that that new spot won't work. They can't get the radio signals that they need, so we need to
find another place. Now there are other options, but it means that we're likely to delay the project by another month or two as we work that through. These are the sorts of things that you work through as a wind farmer. It's often two steps forward one step back, maybe a couple of sideways, but I think what we have shown at Meridian we have the capability and the experience to get it done, and we will get it done.
Are we first class in the world then for wind farming?
Yeah? Absolutely. The onshore wind resource in New Zealand is the best in the world. When I first joined Meridian, I went off to see one of our main supply seemens in Denmark and they had the wind farm out here in Wellington at marcra will call it west Wind plastered all over their buildings because it was the best performing wind farm that they had built anywhere in the world. Terrary whole will be an even stronger performing asset than that one.
Because with climate change we're supposed to get windier. So is it even is it even more potential?
Yeah? In New Zealand there is absolutely. It's interesting with climate change we're likely to get more rain into where the hydro catchments are in this country and more wind into those areas that we're building wind farms, so it should improve the overall generation capability. Out of the assets that are that are being deployed, have been deployed and will be deployed.
You said before, there's a few hurdles to go. You've got, you know, a few things you need to sort out. There's a shareholder vote, there's a High Court commist commission. I think there's a number of regulatory things as well. How confident are you that this will will go through?
Well, we think the offer that we're put on the table is outstanding value for New Zealand ship wind Farm shareholders. You're getting a good return on the asset and taking no risk from this point on, and there's still quite a lot of risk and work to be done. So we think it's a really good a really good option. We think it's a fair deal and it's a fear for the Meridian shareholders as well. So we think it's a great example of working together with a board that
have actually put their asset on us. You know, we've had to front with our very best foot sorry, put our very best foot forward. But we think it'll work through the process and subject to shareholder approval, it'll be a great outcome for all concerned.
We've got quite a big contingent of shareholders on cheesies, I think twenty twelve percent, which is quite something for a retailed block. Do you ever hear from them or do you sort of know much about what they might be thinking since this was announced.
I think we No, I haven't heard directly other than through the New Zealand Wind Farms board members. They're communicating directly with their shareholders. It's not for us other than the sort of sort of pitch, But from aridiance perspective, we're learning more and getting more engaged for shares these shareholders, for sure. And I think our CFO Mike Grohn is
who's who's the next CEO? By the way, He's been on a couple of sort of similar podcasts as are, So yeah, it's it's it's certainly an area of growth. It's a great opportunity for Kiwis to take ownership of some outstanding assets in our country. I use it myself for my share portfolio. So yeah, No, we're happy and more than willing to engage with share shares these shareholders as much as yeah, of use to them.
I won't ask you for tips then on cheer training this time.
No, I wouldn't at the moment either, because the share market is in Yeah, it's it's blood on the floor all over the place, but it's due to international matters that are outside of we folk in New Zealand just going to ride through that for the time.
When you think about those New Zealand Wind Farms shareholders, I mean they are potentially going to be shareholders in Meridian. It's quite a different company to what they signed up for. It's a gen Taylor. It's got, as you said before, a number of challenges and opportunities. What would you say to them?
Our growth prospects are fantastic renewable energies the future. It's the competitive advantage for New Zealand. So it's certainly a place that I have a lot of personal holdings in the company and I'll keep that even when I've moved on from being chief executive.
Thanks to Neil Barclay of Meridian and Craig Stobo of New Zealand Wind Farms for their insights around the potential takeover. Also look out for a bonus episode with Neil Barclay as we find out what it's like to be a CEO of a gent Taylor. You can watch Shared Lunch on YouTube or follow us on your favorite podcast app. Leave us waiting and tell us what you'd like to hear next mm hmm,