KEY POINTS:
Contact Energy shares soared to an all-time high yesterday on market speculation of a buy-out after an unsolicited offer for its majority shareholder Origin Energy.
It emerged yesterday that BG Group, Britain's third-largest natural gas producer, had offered A$14.70 a share for Sydney-based Origin - a move valuing the company at A$12.91 billion ($15.54 billion), representing a 40 per cent premium on Origin's Tuesday closing share price of A$10.47.
Contact Energy shares surged as the news broke, at one point touching $10.15, up 77c. Gains slipped back after midday, and the stock ended at $9.70, up 32c.
Grant Williamson, a director at sharebroker Hamilton Hindin Greene, said the 40 per cent premium offered on Origin - which holds a 51 per cent stake in Contact - had sparked the sudden jump in the share price.
"The New Zealand investors are saying, 'Well if they can pay a 40 per cent premium for Origin, then obviously Contact Energy is also undervalued and warrants a premium.' The other probably speculative element in it is if BG takes over Origin, would they also want to take over Contact Energy to keep things nice and tidy?
"That's what the market would be believing - that there is a narrow possibility that Contact Energy could be in play once again."
Contact and Origin had attempted to merge in 2006, but despite support fromContact's directors, the move failed after it did not get buy-in from institutional shareholders.
Forsyth Barr analyst Andrew Harvey-Green said the spike yesterday would have been buoyed by speculation that BG could either mop up the remaining 49 per cent it does not own, or sell its 51 per cent stake.
But it was difficult extrapolating anycontrol premiums for Contact based on BG's premium for Origin.
"But I guess it gives some sort ofindication that, yes, you would expect a premium - there's no doubt about that - but exactly what size you'll have to wait and see."
Williamson said any decisions on Contact were still some time away.
"There's a lot of water to go under the bridge yet. I think BG will have their hands tied up with Origin at this stage, so I think any movement on Contact would be quite some way down the track. I don't think investors should get too excited in the very short term.
"But it just does show that a number of these energy companies, particularly in the Asia Pacific region, are undervalued when compared with their peers internationally. And therefore Contact still looks very cheap."
The announcement of BG's bid for Origin was not made on the NZX, and Contact only issued a statement at 2.49pm, long after the share price surge had stabilised at around the $9.70-$9.80 mark.
It said: "Contact Energy has no information from BG Group or Origin as to anyimplications this proposal may have forContact or its shareholders. Contact will inform shareholders of any further developments as they arise."
Williamson believed New Zealand investors needed to be informed from the start. "I think it's probably left the NewZealand investor a wee bit uninformed on the current situation and I think it would have been appropriate if it had come through New Zealand, but of course the offer being made is only to the Australian parent company on the ASX."
Origin advised its shareholders to take no action. BG's proposal is also subject to shareholder and regulatory approvals.
ENERGY BUY-UP
* BG is Britain's third-largest natural gas producer operating in 27 countries.
* It has offered A$14.70 a share for Origin Energy, Australia's second-biggest electricity and gas retailer.
* The offer values the company at A$12.91 billion ($15.54 billion) and represents a 40 per cent premium on Origin's share price.
* Sydney-based Origin owns 51 per cent of Contact Energy, which it bought from Edison Mission in the US in July 2004 for $1.68 billion.
* Contact is the third-biggest listed company on the NZX behind Telecom and Fletcher Building.
* It generates between 25 and 30 per cent of New Zealand's electricity, and is the country's largest wholesaler and retailer of natural gas and LPG.
