Gaynor: Full victory an uphill mission for Edison

By BRIAN GAYNOR

Edison Mission Energy's $3.85 a share takeover offer for Contact Energy is unlikely to succeed for several reasons:

* The company's share price is trading above the intended offer price, indicating that institutional investors believe $3.85 is too low.

* Because of high electricity prices, Contact Energy will report an excellent result for the year to September 30 and these figures will be available before the formal offer is made.

* No final dividend will be paid for the 2000/01 year. As a final fully imputed dividend of 12.36c was paid for the September 2000 year, and a final dividend of nearly 14c was expected for the current year, this effectively reduces the offer to $3.71 a share.

* Taking this into account, Friday's offer was at a premium of only 7.5 per cent to the previous day's closing price of $3.45. This is well below the premium usually offered in a takeover.

* As the offer is conditional on 90 per cent acceptances and many of the company's 136,000 mum and dad shareholders will not respond to the bid, the offeror may have difficulty achieving the 90 per cent threshold.

One of the most interesting aspects of the offer is whether minorities are entitled to a premium for control.

Robert Driscoll of Edison argues that his company paid the premium for control when it bought a 40 per cent stake from the Crown for $5 a share in 1999.

A Grant Samuel independent appraisal report, made in May before Edison raised its holding to 51 per cent, argued that Contact shareholders did not receive a full premium for control in the May offer.

But in some jurisdictions such as Australia, there are principles and rules, which have the clear intent that minority shareholders should receive their share of a control premium in any corporate transaction.

The report went on to say it is likely that in New Zealand, following the introduction of the Takeovers Code from July 1 this year, independent advisers will adopt the same stance as generally accepted by experts in Australia, where any offer to minorities of less than the full underlying value would be deemed to be not fair.

As Grant Samuel has been re-appointed to assess this latest offer, its conclusions on the premium for control are awaited with interest.

The most likely outcome is that Edison will either raise its bid above $3.85 a share and reach 90 per cent or it will waive this requirement and be happy with less than 90 per cent.

Under the creep provisions of the new Takeovers Code, Edison could then buy 5 per cent of Contact in any 12-month period starting one year after the current offer closes.

The Contact takeover offer still has a long way to run but the Grant Samuel report will have an important influence on the final outcome.

Spectrum Resources

Several Spectrum Resources shareholders are getting hot under the collar over a resolution that will be put before next Tuesday's annual general meeting.

This is the motion to change the terms of the company's 50 million listed options.

These options, which were issued midway through last year, are exercisable at 8c a share on March 29 next year.

But it is now proposed to change the exercise price to 6c and to extend the exercise date by two years.

Some ordinary shareholders are opposed to the motion because they believe it has the potential to transfer wealth from them to option holders. It also means there is a greater chance that their shareholding will be diluted.

On the other hand, the company wants to keep its finance raising options open.

The motion requires a 75 per cent majority and option holders cannot vote, but as many of the option holders are also ordinary shareholders organised opposition will be required to defeat the proposal.

Spectrum changed direction last year and bought WEL Technology, now called Kinetiq.

The new acquisition has one main product, PV2, which is a software application aimed at energy companies, mainly in the United States.

Investors have lost interest in most technology companies and Spectrum's recently released annual report contains a mix of optimistic and cautious comments.

Chief executive Gavin Mitchell concluded: "We have now laid a sound foundation for Kinetiq and are looking forward to a period of significant and sustained growth.

"However, we recognise the risks inherent in being a single product company focused on a single market sector and we will continue to research new opportunities for similar products and technologies employed by Kinetiq."

The company generated revenue of $2.9 million in the year to June and it still has $3.3 million in the bank, but its cost structure is probably too high in the current environment.

Shareholders should get a clearer view of Spectrum's prospects at the meeting.

Ports of Auckland

Ports of Auckland shareholders had plenty to cheer about at Monday's annual general meeting.

The company announced a $132 million capital repayment, 272 shareholders went on a boat trip around the company's facilities and the meeting was held in the big conference room of the new Hilton Hotel on Princes Wharf.

A special perseverance award should be given to Harry Palmer, a waterfront worker for 27 years, who stood unsuccessfully for the board for the seventh time.

He took his inevitable defeat in a jovial manner and when asked by a fellow shareholder how many strikes he had been on he replied "not too many" with a grin.

Shareholders were told that earnings for the three months to September 30 were marginally ahead of the same period last year, but trading had become more difficult in recent weeks.

Chief executive Geoff Vazey said that until the tragic events in the United States last month the domestic outlook was reasonably solid.

But trading conditions were now more difficult to predict and world trade was expected to slow in the short term.

Ports of Auckland, like most other companies, has entered uncharted waters. It is extremely difficult to predict when the international and New Zealand economies will turn up again and have a positive impact on the corporate sector.

* bgaynor@xtra.co.nz