The New Zealand Herald and Wellington’s Dominion Post said key institutional shareholders in Contact were unlikely to vote for the proposed merger in its current form.
Both newspapers quoted various fund managers and analysts as saying Origin and Contact will have a tough job selling their merger proposal to small shareholders unimpressed with the present plan.
The financial commentators say the rationale for combining the companies is sound but a fairer value for Contact needed to be established.
They say the merged ContactOrigin – which will give Origin a 75.7% stake in the enlarged company instead of its current 52.4% in Contact – would increase Origin’s control for no extra premium if done at the recommended Contact valuation of about NZ$7 per share.
They believe NZ$8-plus is a better valuation and ABN Amro said in a research note published yesterday that its fair share price for Contact was NZ$8.24.
Origin and Contact have said they arrived at the NZ$7 figure as being the average Contact share price during the past nine months.
The financiers also said there were the good half-year financial results from Contact to consider and the not as good six-month results from Origin. Origin's half-yearly profit of A$193.7 million was a 14% improvement on the results for the 2004 period, while Contact's profit shot up from NZ$84.7 million to NZ$146.6 million.
Some said they were not swayed by Origin managing director Grant King and Contact deputy chairman Phil Pryke saying Contact needed secure future gas supplies and would face less risk in a combined company with Origin's exploration skills.
Origin needed access to Contact's strong cashflows and its low debt levels more than Contact needed Origin's exploration skills, the money managers said.
Key institutional shareholders hold about 24% of Contact’s shares and their votes could be crucial to the success of the proposed merger.
The proposed ContactOrigin will be a dual-listed company, with Contact’s shares remaining listed on the NZX and Origin’s on the ASX. It will be run by a single Australian management team but kept as two distinct legal entities.
Contact minority shareholders, who curently hold 48.6% of Contact, will own 24.3% of the merged business, while Origin shareholders will hold the remaining 75.7%.
Contact has said it expects two shareholder votes to be necessary to approve the merger. The first, which Origin can vote on, would need 75% approval, while the second, which excludes Origin, would need just over 50% approval.
All Contact shareholders will be able to vote on the merger deal and an independent appraisal report will be sent out.
Approval is also needed from the New Zealand Takeovers Panel, the NZX and the New Zealand Overseas Investment Office.
Contact has over 95,000 shareholders and its share price peaked at NZ$8 last November.
