Takeover belief spurs Contact Energy shares

By CHRIS DANIELS, Energy Writer


Canny investors hoping for a Contact Energy takeover offer are thought to be behind a bounce in the power company's share price.

The US energy company has debt problems at home and is in the process of selling some, or all of its foreign investments.

Sharemarket action so soon after news of Edison's proposed asset sales is being viewed as a clear sign of arbitrage - buying the shares for short term gain in the hope that they will soon be sought at a higher price by someone making a full takeover offer. But while the chances of a takeover offer might be high - any buyer of the entire Edison stake in Contact would have to launch one- there is also a big chance of an offer failing to win support from existing shareholders.

In 2001 Edison launched a takeover bid for the 49 per cent of Contact it did not own, offering shareholders $4.14 a share.

In November 2001, chairman Phil Pryke recommended that shareholders accept the Edison offer, saying that if it failed, it was likely that the share price would fall from its present level.

Since then, the Contact share price has increased by nearly 35 per cent, reaching more than $5.60.

Goldman Sachs JBWere analyst Peter Sigley said local institutional shareholders were opposed to the takeover deal not only because of the price offered by Edison Mission, but also because of the excellent future earnings potential of Contact Energy.

There was also an element of keeping a solid local company listed on the local stock exchange.

A problem faced by any new bidder for the entire company would be the expense and trouble involved in pitching the offer to the many thousands of small shareholders.

When Contact was privatised by the National Government, share ownership was promoted through public advertisements.

While the number of small shareholders has dropped, Contact still has more than 100,000 shareholders who own fewer than 5000 shares.

They account for 15.5 per cent of all Contact shares.

Any company wanting to fully takeover the company would have to convince a good number of these shareholders to sell, as 90 per cent of all shares are needed before it can compulsorily acquire them all.

By comparison, Carter Holt Harvey, a similar sized company, also half-owned by a foreign company, has just under 33,000 shareholders with similar sized parcels, accounting for 2.8 per cent of the company's shares.

The company has recently launched a campaign to encourage these smaller shareholders to increase their shareholding parcels, by requesting their half-year dividend payment be used to buy Contact shares.

Its deadline for those shareholders owning fewer than 5000 shares to sign up for the scheme closed on November 20.

No details have been given about how successful the scheme has been, possibly due to the effect it might have on the share price.

Brokers ABN Amro Craigs are buying shares for the small shareholders on market and have said they will buy them over a long enough time period so as not to affect the price.