New Zealand investors shouldn't get too excited about the prospects of the generous British Gas (BG) bid for Origin delivering a similar premium for Contact Energy.
While it is good to finally see some action in a dull market, it is important that Contact investors get to grips
with BG's business model and its motivations.
If it proves that BG isn't particularly interested in Contact, then this bid could actually lower the local company's value.
BG may look to offload the 51 per cent Contact stake quickly and efficiently in an off-market transaction. That could mean selling it for below its market value.
BG's focus in making this bid is most likely to be on Origin's Australian Liquid Natural Gas (LNG) reserves.
As one Australian resources analyst - Gavin Wendt at Fat Prophets Funds Management - told Bloomberg News: "BG wants to get involved in Asian LNG, and the easy way to do it may be through Origin's coal-seam gas reserves."
If that is the case, then a majority stake in Contact Energy is likely to be viewed as an unnecessary add-on. If they don't get any reasonable offers then they may be prepared to live with the status quo.
But it's hard to see BG make a takeover bid for the outstanding 49 per cent.
Given that the Origin takeover could take months to play out, it is possible we could even see BG try to line up potential buyers in advance of the deal's completion.
Also hampering the Contact sale prospects is the fact that new Overseas Investment Office rules will make it unlikely that any foreign buyer could go to 100 per cent control.
After an 80c spike in Contact's share price as the BG news broke yesterday, it closed just 32c up for the day, suggesting some investors may already being having second thoughts. about the outlook.
