Origin managing director Grant King told a media conference in Sydney this morning that he was “surprised and delighted” Origin had managed to seal this “perhaps once only opportunity” to buy a controlling stake in a New Zealand integrated energy company such as Contact.
“This transaction is a very sensible one, involving very similar and very comparable companies. It gives us expanded opportunities to continue Origin’s strong and predictable cashflows.”
The 10-15% annual growth achieved in the past should still be achievable with the combined portfolios of the two companies.
Executive director Bruce Beeran said Origin had entered into a conditional agreement to acquire EME’s 51.2% interest in the issued capital of Contact Energy for a consideration of NZ$1,675 million or NZ$5.67 per share. The deal includes the assumption of NZ$535 million of debt in relation to the financing of EME’s shareholding in Contact.
This would be adjusted by any dividend paid by Contact prior to completion - which was expected to be between mid-September and late November - and compared with the July 20 closing price for Contact shares NZ$5.94 in the New Zealand Stock Exchange.
However, completion of the acquisition was subject to the New Zealand Takeovers Panel granting an exemption which would allow EME to sell its NZ holding company (Edison Mission Universal Holdings) to Origin, rather than Contact Energy shares.
“We have been reviewing opportunities in the New Zealand energy market for many years. Our interest has been evidenced in recent times by our investment in the Kupe gas project and acquisition of the remaining 50% interest in Rockgas,” said King.
“Contact is a strongly performing business that has a similar business model to Origin, focusing on the competitive generation and retail segments of the New Zealand energy market.
“We are confident that the acquisition of a controlling interest in Contact Energy provides a unique opportunity for Origin to add scale and diversity to its existing businesses in markets with known economic, competitive and regulatory structures. It will enhance Origin’s value proposition to investors to deliver strong cash flows with significant opportunities for growth.”
Commentators had largely anticipated the deal and previously said either that the largest Aussie energy company, AGL, or second largest, Origin, should win out ahead of Asian interests.
“Interesting isn’t it?” said one commentator, “this must be better for Contact and New Zealand than having a cash strapped EME still involved.”
The markets also anticipated the move, especially when Origin halted trading of its shares late yesterday pending the announcement of a "significant investment".
The addition of around 600,000 gas and electricity customers and around 2490MW of generation complements Origin’s existing businesses; while Origin’s existing extensive exploration and production interests in New Zealand offers potential for Contact to access more natural gas in an ever-tightening market.
King said Origin was interested in subsequently acquiring 100% of Contact through bidding for the remaining issued share capital at the same price as that paid to EME. However, given that Contact shares closed yesterday at a 4.6% premium to Origin's purchase price, Contact's approximately 105,000 shareholders are unlikely to jump at that chance.
Beeren said total final costs could between NZ$1.67 billion and NZ$3.3 billion and the final amount of debt to be raised and the final number of preference share issues made would depend on the level of acceptance by the minority shareholders.
Contact spokesman Pattrick Smellie said his company’s response to the Origin offer would be overseen by the independent directors of the company - chairman Phil Pryke, John Milne, Tim Saunders and Patrick Strange.
