KEY POINTS:
Conflicting market sentiment over Contact Energy's future following the A$13 billion ($15.6 billion) bid for Australian parent Origin caused its share price to travel sideways yesterday as ebullience over its prospects waned.
Despite an initial burst of volatility which saw the price dip 20c, the energy company's shares
recovered in afternoon trading to close unchanged at $9.70
Stephen Wright, of ASB Securities, said the market had calmed down as more people realised that BG Group's offer of A$14.70 a share for Sydney-based Origin could take months to materialise, and its intentions for Contact remain unknown.
But BG is widely tipped to be keen on divesting itself of Contact, as energy retailing and electricity does not fit with its overall strategy of being a gas producer. Thoughts of it accepting a low-ball offer were, however, unlikely.
"They're not going to sell it at some sort of discount, I wouldn't have thought. That's an idiotic thing to do," said BT Funds Management's Paul Richardson.
"At first sight, it doesn't look like BG is interested in most of what Origin is, or most of what Contact is - they're interested in what looks like the coal seam, gas and LNG aspects of Origin.
"It's a funny thing to do to bid A$12.9 billion for just that part of it, given they've also got 10 per cent or thereabouts of Queensland Gas as well, but if they're doing something like that, they may have a back-to-back deal already thought of at this stage."
He said BG could be content to just sit on their 51 per cent stake for the moment.
Under New Zealand takeover law, BG, if successful in taking over Origin, must make an offer for the rest of Contact's shares.
The expectation, however, was that it was unlikely to carry a large premium, said Richardson.
One fund manager said a scheme of arrangement could get around the requirement, but a low-ball bid for the remaining shares might be more likely. But how the Takeovers Panel might receive that was unknown. "This is such an untested area of the law."
He also thought BG was not after Contact. "If anything, they are a seller of that asset."
A big premium from a trade buyer, however, was unlikely, he said.
Origin is being advised on the BG Bid by the Macquarie Group. Macquarie Equities analysts calculate the implied value for Contact in the BG bid to be $12.28 a share, based on the Origin offer's enterprise value premium of 31 per cent.
"In my mind it's inconceivable that when BG made a move on Origin they didn't take into consideration what Contact Energy actually represents. Contact Energy is without doubt the premium energy player in the New Zealand market," said Macquarie investment director Arthur Lim.