Minority shareholders advised to hang on to Contact

11.20am

Electricity generator and retailer Contact Energy's independent directors this morning predictably advised minority shareholders against accepting Origin Energy's $5.57 a share offer.

The independent directors - Phil Pryke, John Milne, Tim Saunders and Patrick Strange, said in a statement the Australian company's offer price was at "a discount to Contact's recent share price history".

"Furthermore, the independent directors believe that the offer price does not reflect Contact's strong position in the New Zealand electricity and gas markets, or the growth opportunities available to Contact."

"This growth potential is reflected in the strong financial performance we expect the business to achieve this financial year," Mr Pryke said.

"Our current expectation is that Contact will record a net surplus after tax of approximately $143 million this financial year."

Last year the company, which has about 30 per cent of the New Zealand electricity generation and retail market, posted a net surplus for the September year of $118.3 million, an 11 per cent increase on the previous year, buoyed by rising electricity prices.

In July, Origin bought a 51.2 per cent stake in Contact from Californian power giant Edison Mission Energy for $5.67 per share.

Under New Zealand's takeover rules Origin was obliged to launch a full takeover offer for the remaining shares, at the same price.

Its offer to minority shareholders at $5.57 a share is the same amount less the 10c per share special dividend paid last month.

While Origin said it had finance for large numbers of acceptances by minority shareholders, its offer was seen as sufficient to secure the cash-strapped Edison's controlling stake without tempting smaller investors.

The independent directors also said the offer price fell well below the mid points of value ranges assessed by independent valuer Grant Samuel, and financial advisors Cameron & Co Ltd.

The independent directors also said the offer gave no premium to Contact's current share price. The company's shares were down 4c to $5.99c in mid-morning trade today on the NZX.

The independent directors said details of their recommendation not to accept the offer and the reasoning behind it were set out in Contact's Target Company Statement, which was being mailed with Origin's offer documents to all Contact shareholders from today.

- NZPA