Contact ducks scrutiny

By CHRIS DANIELS energy writer

Contact Energy has called off plans to lift its stake in an Australian power station, after the Market Surveillance Panel said it would have to put details of the deal before its minority shareholders.

The panel yesterday announced that it had cleared Contact of any wrongdoing in its deal to build the Victorian power station under a joint-venture arrangement with its 51 per cent shareholder, Edison Mission.

A two-stage deal to buy into the venture angered some shareholders, who felt that Edison Mission was seeking to disadvantage Contact's New Zealand shareholders.

Any deal with a related party, such as that between Contact and Edison, needs special shareholder approval and an independent appraisal report if it involves more than 5 per cent of shareholders' funds.

The "Valley Power" deal in question was a two-part scheme, initially committing $81 million or 4.9 per cent of Contact's shareholders' funds.

Simon Botherway, head of equities at Arcus Investment Management, which is one of Contact's largest institutional shareholders, said Contact had something to hide in the deal, and had never wanted it to be scrutinised by minority shareholders.

"This company needs to do a lot more explaining," he said.

Contact chairman Phil Pryke said yesterday that the directors had decided against taking up another 10 per cent of the project, despite the fact that it would "produce net financial benefits to Contact and its shareholders".

He said this needed to be weighed against the six to eight weeks required to hold an extraordinary general meeting and mail documents to shareholders.

"This sort of delay is not compatible with the timetable required to exercise the option.

"Reluctantly, Contact's independent directors concluded that the option would have to be waived."

Botherway said that was farcical and the company needed to explain why it no longer wanted to go ahead with a deal that was apparently good for shareholders.

There had been an ongoing failure of Contact to provide information to shareholders about the deal, he said.

"The company obviously anticipated that this deal was structured in such a way as to circumvent the listing rules, but they weren't quite that clever apparently."

The surveillance panel said the listing rules did not stop a company from "constructing transactions to fall outside their thresholds", as long as shareholders were not disadvantaged. "The panel has no reason to believe that Contact's directors have acted contrary to shareholders' interests in respect of this transaction."

But it said if Contact decided to increase its stake in the venture to 50 per cent, it would have to "consider whether minority shareholder approval with an independent appraisal report would be required before the option was exercised".

Contact avoided the 5 per cent related party threshold requirement by splitting the Australian investment into two parts, although the second part of the deal, an option to increase its stake by 10 per cent, taking it to a 50 per cent share in the venture, would mean the commitment of more than 5 per cent of shareholders' funds.

Botherway said the panel should have looked at the deal as a whole, and not as two separate transactions.