The future of Contact, and the potential for it to become a takeover target, has been thrown open to speculation for the second time in two months as British gas producer BG (British Gas) again targets Origin.
Shares in Contact Energy, which operates the Clyde and Roxburgh hydro power stations, were thrown into a trading halt about noon yesterday, having been trading up slightly at $8.49 before the halt.
BG's first takeover offer for Origin last month of $A15.50 a share was rejected by Origin's board, after it had re-estimated its Australian coal seam gas reserves, but the new "off market" offer of $A15.50 yesterday from BG is now being made directly to shareholders.
However, ABN Amro Craigs broker Chris Timms said there were unlikely to be any shareholders considering accepting the offer - about A80c below the trading price yesterday - and he fully expected the offer would be revised upward.
"This is a hostile. Origin is not going to want to help out BG and will put every impediment in place it can," he said.
The value of the offer would be determined over coming months, as shareholders reacted to BG's argument and the counter-argument for not selling by Origin's board, and subsequent share price movement.
Also under question may be the effect of the Government's new "strategic asset" regulation, rushed through in March to stop a Canadian pension fund takeover of Auckland International Airport, on Contact's assets; which are already majority owned by Australia-owned Origin.
Mr Timm's understood BG was more interested in Origin's assets than Contact and while it could either take an active stake in Contact or sell, hydro electricity generation for BG was not part of its core business.
He said BG would have factored in the value of Origin's stake in Contact, but it was difficult to determine whether Origin would treat that as a bonus or simply part of the takeover.
Contact accounted for 36.5% of Origin's's operating earnings.
The BG offer carries an almost 50% premium for investors, compared with its closing price on April 29.
However, Origin shares had since risen to $A15.52 by the beginning of the week and lifted a further 3.4% yesterday after the hostile bid was lodged.
The offer, containing a conditional minimum acceptance of 50.1%, is expected to be formally delivered to shareholders in about five weeks and be open for two months, and may be extended.
BG Group chief executive Frank Chapman said Origin had good retail, power generation and exploration and production businesses.
However, Mr Chapman claimed yesterday Origin did not have the coal seam gas reserves for a proposed liquefied natural gas venture with Malaysia, there were third party contractual rights over a "large number" of its tenements that had "not been adequately explained" and Origin's domestic market coal seam gas requirements exceeded its "currently available proven reserves".
He said Origin shareholders had "limited visibility of the risks" in Origin's coal seam gas reserves, there were no coal gas to liquid gas plants in the world and competing projects were more advanced.
"Many billions of dollars of capital investment would be required. BG Group will now engage with Origin shareholders directly to explain its rationale and set out its value proposition," Mr Chapman said in a statement.
In mid-May, on the basis of the first offer, the New Zealand Take-overs Panel granted an exemption to BG from having to make an immediate offer for Contact as part of its takeover bid for Origin.
In a filing to the New Zealand Stock Exchange at the time, BG said the panel had informed the company it would not have to make an immediate takeover offer for Contact or obtain shareholder approval as a condition of the transaction with Origin.
If the Origin bid was successful, the panel would require BG to make a cash bid for Contact within one month of the Origin offer becoming unconditional. The value of the Contact bid would have to be verified by an independent expert approved by the panel and needed the approval from the Overseas Investment Office.
Mr Timms understood BG would have to go back to the takeovers panel for a new approval, and also the Overseas Investment Office, noting that Origin's board may have the opportunity to counter issues addressed in the application.
