Investors wait on Edison

By CHRIS DANIELS

The nervous wait for Contact shareholders continues, with still no news from United States energy giant Edison Mission, which is in the final stages of selling its $1.6 billion stake in the company.

Reports from Australia last week suggested that AGL and Origin - two of Australia's biggest energy companies - had put in bids for the stake, which is being sold as part of Edison's exit from non-US businesses.

Should AGL be successful, its purchase could set in train a cascade of merger and acquisition activity throughout the New Zealand energy sector.

AGL, a $5.3 billion company listed on the Australian Stock Exchange, owns 66 per cent of New Zealand gas pipelines company NGC.

NGC has been in merger talks with Powerco - the New Plymouth-based electricity and gas network company.

It has also been talking with Vector, the largest lines company, which wants to expand further into the telecommunications business, possibly in a partnership with TelstraClear.

This expansion was given further confirmation by the appointment of former director Wayne Boyd to the board of Telecom last week.

He had only just resigned from the Vector board, saying he felt he could not stay with the lines company while a "potential conflict of interest" was possible.

Any takeover offer for the rest of Contact will raise interesting challenges for a new owner of the Edison stake.

As well as the possible need for money to pay for the Contact purchase, AGL would be unable to own any share of Powerco while also owning Contact, since New Zealand law forbids owning large-scale power generation, retail operations and a lines business.

Contact currently has about 105,000 shareholders, making the 90 per cent ownership threshold a difficult hurdle to leap.

During its 2001 takeover attempt, Edison Mission took out full-page advertisements in newspapers, set up 0800 call centres and posted thousands of booklets to small shareholders, urging them to sell their shares.

It failed, despite being endorsed by Contact chairman Phil Pryke. Edison was offering $4.14 a share for all the shares it did not already own.

Pryke recommended that shareholders accept the Edison offer, saying that if it failed, it was likely that the share price would fall from its present level.

Since then, the Contact share price has increased by nearly 40 per cent and the shares are currently selling for $5.80 each.

Some brokers have predicted any successful takeover offer would need to be priced at a healthy premium to the current share price, with some estimates ranging between $6.50 and $7.50 each.

This could mean any new buyer simply pitches the offer high enough to buy the stake from Edison, but low enough so as not to have any chance of success with the other shareholders.

Contact is a prized investment for many small New Zealand investors and institutions, returning good dividends and capital growth.

There is a widespread belief that it would be difficult to replace in any portfolio, so a premium price would need to be offered to attract many sellers.