Origin Energy has started talks with rival AGL Energy on a merger to form a company to supply power and gas to half of eastern Australia's households.
Origin is the majority shareholder in New Zealand company Contact Energy.
Any transaction may not be a "merger of equals" asproposed last month by AGL, Tony Wood, an Origin spokesman, said yesterday. There is no certainty the discussions will result in an agreement, Sydney-based Origin said in a statement.
AGL, Australia's biggest energy retailer, said on Sunday that it made an initial approach to Origin for a merger under which Origin shareholders would receive no premium for their shares.
AGL's market value of A$6.6 billion ($5.1 billion) is A$1.2 billion less than that of Origin.
"The fact that Origin is saying they've been talking to AGL would indicate that things are a bit more progressed than they were previously," said Grace Chan, a utilities analyst at JPMorgan Chase in Sydney.
Origin shares rose A3c, or 0.3 per cent, to A$9.14 on the ASX, bringing the gain since the approach by AGL was announced to 6.6 per cent. AGL shares fell A6c, or 0.3 per cent, to A$17.70. They have gained 12 per cent since merger approach news.
Origin is being advised by Macquarie Bank and AGL is by Goldman Sachs JBWere and Credit Suisse Group.
Origin's BBB+ credit rating from Fitch Ratings may be cut as a result of any merger, the ratings company said, in a statement.
