Contact likely to wait a bit longer

By GEOFF SENESCALL

Contact Energy, long touted as a takeover target, looks set to remain on the shelf a little longer as talk of bankruptcy hits Edison Mission, Energy's sister company in the US.

Brokers said yesterday that under such pressures it was unlikely that Edison Mission would make its long-expected move to increase its 41 per shareholding in Contact.

That was certainly weighing on the share price of Contact now, said Arthur Lim of JP Morgan (formerly Ord Minnett).

Contact fell a further 4c to 266c. In December it fetched as much as 295c.

But Edison Mission's problems on its home front did raise the possibility of its selling its Contact shareholding, Mr Lim said.

This would be a major turnaround for the US company, which bought its 40 per cent shareholding in Contact from the NZ Government in May 1999 at 500c a share.

Edison Mission is one of the largest owners of power-generation assets in the world. It is owned by Edison International, which is listed on the US market.

Edison Mission and Southern California Edison are its two major assets, the latter being the problem child facing bankruptcy.

Southern California Edison and fellow US utility company Pacific Gas & Electric have incurred a huge $US11.9 billion ($26.4 billion) debt while buying power this summer and winter to overcome shortages in California.

Authorities in California are looking at measures to address the crisis and avert potential blackouts.

One option being discussed, according to a Bloomberg report, is to let the utilities issue new bonds with state aid.

Power prices in California quadrupled over the past year.

Reports suggest this was because of flaws in the state's deregulation law, a power plant shortage, soaring natural gas prices and bad weather that both boosted power demand and cut production from hydroelectric dams.

Contact Energy declined to comment, saying it was an issue for its major shareholder.