Utilities investor Infratil Ltd. (IFT.NZ) in consortium with the government New Zealand Superannuation Fund said Tuesday it has entered exclusive negotiations with Royal Dutch Shell PLC (RDSA, RDSB, RDSA.LN, RDSB.LN) over the possible acquisition of Shell New Zealand Ltd.'s refining and downstream distribution and retailing businesses.

The combined revenue of Shell's downstream businesses totaled NZ$2.9 billion in 2007, Shell said in May.

In a statement, Morrison & Co. which manages Infratil, said the scope of the proposed transaction includes, but is not limited to, a 17.1% stake in New Zealand Refining Co. (NZR.NZ), Shell New Zealand's supply-and-distribution infrastructure, and its retail and B2B fuel business.

"The consortium has submitted a non-binding conditional proposal to Shell and has entered into the final phase of due diligence," it said.

"Discussions and negotiation will continue during November and further advice on the status of the discussions will be provided as material developments occur."

Shell New Zealand late last year said it was conducting a review of its downstream business as part of a strategic review of its global businesses. In May, it appointed UBS AG (UBS) to help with the sale.

All of its downstream businesses, with the exception of its 36% stake in construction and roadworks company Fulton Hogan, were up for sale.

The company's downstream assets include 230 fuel stations, a marine business, commercial fuel and aviation operations, the New Zealand Refining Co. stake, and a 25% stake in Loyalty NZ.

Its distribution network, part of the downstream businesses, includes terminal facilities throughout New Zealand.

Shell in May said it accounts for more than 50% of New Zealand's natural gas production and a big proportion of the country's oil production, which is not for sale.

The upstream businesses comprise a 50% stake in the Kapuni field, an 84% stake in the Maui gas field and a 48% stake in the Pohokura field--all of them located in the country's North Island.

The government in May suspended payments to the New Zealand Superannuation Fund, which has assets of around NZ$15 billion, because of stress on the government's finances. The fund is designed to smooth government pension payments around the middle of the century.

Forsyth Barr broker David Price said Infratil's share price, down 1.2% to NZ$1.63 midsession, shows the lack of enthusiasm for the deal.

Until it is finalized and more detail is known, the stock will remain under pressure, he added.

"We don't know enough about it--what's in the deal, how they are going to fund it. There are no synergy benefits. People have received it not that favorably and they need more information."

Infratil said it won't say more until the deal is finalized, with talks to continue through the month.

NZ Refining shares were up 0.6%, to NZ$5.23 in a flat market, where the NZX-50 benchmark index was down 0.1%, at 3,180.39.

-By Simon Louisson, Dow Jones Newswires; 64-4-471-5990; simon.louisson@dowjones.com
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