Disputes cost Contact $10.75m

Contact Energy said yesterday it had agreed to pay $10.75 million to settle a series of linked disputes arising from its purchase of Empower over three years ago.

In 2000, Contact paid $55 million for Empower, which at that time had 10 per cent of the retail market.

Under the settlement, Contact will pay $10.75 million to Empower's former owners, which it declined to name for legal reasons, in a full and final settlement.

Last week, in the Auckland High Court, Contact and Empower filed proceedings against 29 defendants including Remco Management, a company owned by Empower founders Grant Baker, Shane McKillen and Paul Smithies.

Baker and McKillen - who are former executives in Eric Watson's Blue Star Group - are major backers of the listed spirits company 42 Below.

An arbitration ruling on the main dispute last December went against Contact to the tune of $8 million.

In the "contingent liabilities" section of Contact's 2003 annual report, the company said Remco and the vendors of Empower had commenced proceedings against Contact in December 2002 and Contact had initiated a counterclaim for a similar amount.

Contact said then the matter had gone to arbitration in September and a decision was pending.

Contact had claimed in the annual report that Remco's claim could be successfully defended.

In yesterday's statement, Contact said that it had considered appealing the arbitration award but "following discussions between the parties about the potential appeal and the other related disputes, an agreement was reached to resolve all matters through a global settlement".

"Accordingly, the settlement announced today covers the matters dealt with under the arbitration and other matters that had been in dispute between the parties."

All other claims have been withdrawn as a result of the settlement.

The disputes essentially revolved around how much Contact needed to pay the counter-party for the purchase of shares, Contact said.

"The settlement payment to the counter-party therefore constitutes an increase in the acquisition costs for the relevant shares."

Contact said the settlement would not have a significant impact on Contact's current result as it would be spread through time in the form of a slight increase in its amortisation expense.

It had already set aside a $5 million provision relating to the case.

Contact initially said Empower was the most successful start-up retailer in the country with 25,000 high value residential and business customers.

Soon after the purchase, it folded the company into Contact's main operations but maintains the brand and separate pricing.

- NZPA