KEY POINTS:
A seemingly generous takeover proposal for Origin Energy of Australia, 51 per cent of Contact Energy, sent shares in the New Zealand company soaring to record levels today.
Origin, Australia's second biggest electricity and gas retailer, has received a A$12.9 billion ($15.7 billion) takeover proposal from UK- based utility BG Group (British Gas).
The bid at A$14.70 cash is a near 40 per cent premium to the prevailing price.
There was confusion in the market as to whether a successful takeover by BG would automatically trigger a full takeover bid of Contact under the Takeovers Code.
Contact shares jumped 9 per cent, 77 cents, to a record $10.15, on the prospect although they later retreated to $9.77 in volatile action.
Grant Williamson, a partner at Hamilton, Hindin, Greene, said the BG offer indicated BG valued Contact a lot higher than it has been trading at. At least it indicates the prospect of rationalisation within the Origin group.
He noted BG was offering a 40 per cent premium for Origin.
"No one has crunched the numbers yet, but that is quite a large premium and if they are prepared to pay that, they would be looking at a decent sized premium on Contact as well."
Some analysts already had valuations on Contact at over $10 a share, valuing the company at $5.8 billion.
Macquarie Equities investment director Arthur Lim said the probability was that BG had done significant due diligence on Origin and Contact comprised a significant part of Origin.
"BG would have seen there is value in Contact Energy to be released.
"It wouldn't be paying a premium without saying Contact Energy is worth significantly more."
Contact shareholders baulked at a merger proposal with Origin two years ago and Lim said price would not be the only consideration in any new proposal.
Given previous rebuffs, unless BG offers a big price, it was also likely to be rejected.
Lim said even without a full takeover for Contact, BG's bid meant all energy companies' value had been boosted.
Contact had huge existing and potential green energy assets that had to be recognised, he said.
Tyndall Investment Management's Rickey Ward told NZPA he understood BG would be obliged to make a full bid but would not necessarily offer a premium price, depending on whether it wanted to buy the whole company.
The market speculation was that BG was primarily after Origin's coal seam assets, he said.
"We don't know what they are really after, but the premium suggests they are only after a portion of Origin, but they have to bid for the whole company."
Two months ago BG paid A$664 million for 10 per cent of coal seam gas producer Queensland Gas Co and the two plan to build an A$8 billion liquefied natural gas (LNG) plant near the Queensland port of Gladstone. It would have capacity of 3-4 million tonnes a year. Analysts said Origin's extensive coal seam methane assets in Queensland could provide gas for a second plant.
BG, valued at around US$86.5 billion ($113 billion), is one of the world's most active LNG traders and has long voiced the goal of expanding its position in the Pacific Basin, where LNG demand has been forecast to grow strongly.
Origin, Australia's only vertically integrated energy company with oil and gas assets, is the largest holder of coal seam gas resources in Queensland.
Share analyst Brian Gaynor noted it was Origin and not Contact that owned the Kupe gas assets in New Zealand.
He said it was not clear BG wanted Contact and he disagreed with those who believed a successful bid for Origin would trigger a full takeover for Contact.
Ward said valuing Contact depended on investors' view of future electricity prices and much depended on what sort of Emissions Trading Scheme the Government enacted.
"You can almost have any valuation, but most market analysts expect that the company is worth north of $10 anyway and it is just market uncertainty and liquidity that drove the price down to where it was the other day."
He said Contact shareholders were right to reject the proposal two years ago to merge with Origin just as shareholders were right to reject Edison Mission's $4.25/share offer in 2001. Both proposals were supported by Contact's independent directors, Phil Pryke, Tim Saunders and John Milne, for which they were heavily criticised.
"Clearly, it looks like you have been vindicated as a shareholder, but in reality the market has changed, but shareholders were right to reject it," Ward said.
Contact said it had no information from BG Group or Origin as to any implications the BG proposal may have for Contact.
- NZPA
