Contact, Origin abandon merger due to lack of support

Contact Energy and its 51 per cent owner, Origin Energy of Australia, today announced they have abandoned plans to merge, due to lack of support from key Contact shareholders.

Contact shares dropped 34 cents, 4.5 per cent to $7.15, when the sharemarket opened after the announcement.

The deal announced in February and later extended, never got support from New Zealand institutional investors, who dubbed it a "takeover in drag".

A joint statement from the companies said the Contact independent directors and Origin Energy board believed the terms of the proposed merger appropriately reflect the relative value of both companies and that the merger would create value for both sets of shareholders.

"However, the Origin Energy directors have determined that there is not sufficient support from key shareholders of Contact Energy for the merger proposal to be approved under the current terms."

Origin said it was not prepared to improve the terms of the proposal in favour of Contact minority shareholders "as that would not be in the best interests of Origin Energy Shareholders".

In the absence of improvement terms, Contact's independent directors "assess that there is insufficient assurance of the merger proposal being successfully executed in an acceptable timeframe", Phil Pryke, chairman of Contact's independent directors said.

"Given this, and the significant costs associated with putting the matter before shareholders, the independent directors have concluded that proceeding would not be in the interests of Contact Energy Minority Shareholders."

Mr Pryke said regulatory issues were not a factor in the decision.

"While the merger will not proceed, the challenges facing Contact have not changed," Mr Pryke said.

Contact faces challenges obtaining future gas to fuel its thermal power stations.

Under the merger proposal, Origin shareholders would have owned 75.7 per cent of the merged company, without any money changing hands.

Contact minority shareholders, who own 49 per cent of the local power company, would hold just 24.3 per cent of the merged group.

The deal won unanimous support from Contact's directors -- most notably Mr Pryke, who, with fellow independent directors Tim Saunders and John Milne, recommended an earlier, failed, bid by former majority shareholder Edison Mission in 2001 at $3.85 per share.

Large institutional investor ACC this week obtained a legal opinion challenging Origin's right to vote at the Contact shareholder meeting to approve the deal.

It also challenged Origin's view that some key resolutions needed a simple majority rather than three-quarters of eligible voters.

- NZPA