Edison stalks Contact shares

By GEOFF SENESCALL

Edison Mission Energy is understood to have lined up two broking firms - Warburg Dillon Read and Credit Suisse First Boston - to advise it about buying more shares in Contact Energy.

The US energy company has been widely tipped by the market to increase its 40 per cent stake in Contact after a six month stand-still agreement lapsed earlier this month.

The latest to predict this is broking house ABN Amro, which acted for the Government in the sale of Contact. In a note to clients the broker said it expected Edison would increase its stake to at least 51 per cent.

However, this would unlikely happen before the election on November 27, it said. Because Edison is deemed an insider of the company any bid that it might make requires 15 working days notice. This creates a tight timetable if a bid were to be made before Christmas.

There is also a questionmark over how many shares Edison might buy. One merchant banker said that Edison had been short-listed to buy energy assets being sold by the South Australian government worth around $3 billion. The outcome of this process, expected to be known in several weeks, would determine what Edison did with Contract, the banker said.

If Edison was successful in Australia it would be unlikely then bid for the balance of the shares in Contact. In this situation it would probably only go for 51 per cent, which gives it unfettered control.

Based on Edison's original purchase price for its 40 per cent cornerstone shareholding of 500c a share, Contact shares look relatively cheap. On Friday Contact closed up 5c at 340c. This is up on the 310c the Contact shares where issued at ahead of the May float, in which saw a record 225,000 New Zealanders take part.