Contact shares dragged lower by Origin

Shares in Contact Energy, New Zealand's biggest publicly traded energy company, had their biggest decline in more than three years after prospective merger partner Origin Energy fell to a seven-month low.

Contact's shares have closely tracked those of Sydney-based Origin since February, when the New Zealand company's independent directors recommended combining with its 51 per cent owner. Origin, Santos and Woodside Petroleum, the largest stocks in Australia's S&P/ASX 300 Energy Index, all fell after oil and metal prices dropped on concern rising interest rates would stem global demand for fuel.

Contact's investors vote in August on the plan to create the largest integrated energy company in Australia and New Zealand with 2.6 million customers and A$5.5 billion ($6.5 billion) of sales. Many are wary the merger offers no premium and increases their exposure to Origin's oil and gas exploration business.

"You'd think it must be starting to make it difficult to justify them doing the merger," said Craig Brown, who helps manage the equivalent of $132 million, including Contact stock at Walker Capital Management. Yesterday's slide "just illustrates the different type of exposure you get, and the greater volatility you have, in these commodity-type" companies.

Origin fell as much a 5.3 per cent to A$6.30, after dropping 2.8 per cent on Tuesday. It recovered to be up 2c at A$6.67 at the close in Sydney.

Contact fell 3.6 per cent to $7.45, an 11-week low and the biggest one-day decline since December 2002. The stock has gained 14 per cent since the merger was announced on February 20.

- BLOOMBERG