Edison sells Contact stake to Origin for $1.67b

1.00pm UPDATE

California's Edison Mission Energy this morning confirmed it had sold its 51.2 per cent stake in New Zealand's Contact Energy to Australia's Origin Energy for $1.67 billion in cash and assumed debt.

Edison Mission Energy (EME) spokesman Gil Alexander told NZPA Edison had entered into an agreement to sell its Contact stake to Origin for $5.67 per share. The deal includes the assumption of $535 million of debt.

"EME will receive approximately US$750 million ($1.16 billion) at current exchange rates," the company said in a statement.

"EME intends to use the after-tax proceeds from the sale to repay in part the three-year, US$800 million secured loan at Mission Energy Holdings International, Inc, a direct subsidiary of EME."

EME said the sale was subject to "a limited number of conditions" including New Zealand Takeovers Panel approval. It is expected to be completed in the third or fourth quarter of this year.

EME said it was continuing to evaluate the bids it received for its other international assets.

Energy generator and retailer Contact generates a third of New Zealand's electricity, with about 522,000 electricity customers and 97,500 natural gas customers.

On opening Contact shares tumbled 15c from last night's $5.94 close to trade at 579 by 10.15am.

Origin Energy will under New Zealand securities rules now be obliged to offer to purchase shares from all minority shareholders at $5.67 a share. However, given that Contact shares have for some time traded above this level, Contact's approximately 105,000 shareholders are unlikely to jump at the opportunity to sell.

Contact Energy this morning said it expected to receive a notice of takeover offer from Origin in line with the New Zealand Takeovers Code.

"Contact will respond to the takeover offer in accordance with the Takeovers Code and will be providing a Target Company Statement to all shareholders," the company said in a statement.

Contact's response would be overseen by the company's independent directors, chairman Phil Pryke, John Milne, Tim Saunders and Patrick Strange.

Contact said it would soon appoint an independent adviser as required by the Takeovers Code. Cameron and Company will act as financial adviser to the independent directors.

Meanwhile, Origin yesterday halted trading of its shares pending the announcement today of a "significant investment".

The announcement was due for 9am Sydney time (1100 NZT).

Origin is Australia's second largest energy retailer. According to its website it supplies natural gas, electricity and liquified petroleum gas (LPG) to more than two million business and residential customers in Australia, New Zealand the Pacific.

The company which employs almost 3000, was formerly part of the Boral Group. Origin Energy was listed on the Australian Stock Exchange in February 2000 after the de-merger of Boral's energy business from its building materials and construction business.

Earlier this year Origin purchased a 50 per cent stake in the Kupe natural gas field from Genesis Power for $33 million.

It shortly afterward extended its New Zealand presence, buying Caltex New Zealand's 50 per cent interest in Rockgas Ltd for $17.6 million. The move gave Origin full control of Rockgas, New Zealand's largest distributor of liquefied petroleum gas (LPG) with an annual turnover of $80 million.

Origin also has a number of ongoing exploration projects in New Zealand.

Contact has also flagged plans for gas exploration and will likely benefit from access to Origin's Kupe field.

Origin said its Kupe field contained proved and probable reserves of more than 230 petajoules of sales gas, plus "considerable" condensate and liquefied petroleum gas, with additional reserves potential. The final development of Kupe is expected to be online by mid-2007.

Origin said today the sale was subject to an exemption being granted by the panel which would allow EME to sell its New Zealand holding company (Edison Mission Universal Holdings) rather than its Contact Energy shares.

Origin said the purchase price would be adjusted by any dividend paid by Contact prior to completion of the sale.

Once the sale is completed, Contact's results and balance sheet will be consolidated with Origin's financial statements.

"The acquisition will add substantially to Origin's revenues and operating profits. It is expected to be earnings per share accretive from the first year of operation," Origin managing director Grant King said in a statement.

The acquisition would be funded through a combination of debt and an issue of convertible undated preference shares (CUPS).

The debt facility will be provided by Citigroup and Westpac, while the CUPS will be issued to Deutsche Bank.

Origin Energy executive director Bruce Beeren, said the final amount of debt and CUPS issued "will depend on the level of acceptance by the minority shareholders".


- NZPA