Contact Energy Sale

  • Doug Graham

Thank you for coming along today, at such short notice. We have an announcement of major importance to make to you today.

The successful bidder for the 40% stake in Contact Energy Limited has now been determined.

The price of $1.208 billion is $320 million above the book value of $888 million for 100% of the whole company.

The successful bidder is Edison Mission Energy.

Let me very briefly describe the process involved in reaching the decision which we are now announcing.

Then I'll ask Tony Ryall to tell you a little about the successful bidder, and then, before we volunteer to answer questions, I'll ask Lockwood Smith to remind you that there are quite strict legal limitations on us and any other Government members, in the answers we are able to give at th

is stage. The Government made its decision last year to offer Contact Energy for sale, on the basis of a 40 percent cornerstone holding and a public float of the remaining 60 percent of the shares in the company.

This approach was designed, as we said then, to give Contact the benefit, firstly, of a skilled cornerstone shareholder with a lot of expertise in the industry, and secondly, the solid foundation of a widespread public shareholding.

We were pleased to be able to announce yesterday that more than a quarter of a million New Zealanders have priority registered an interest in the public sale of 60 percent of Contact Energy, scheduled for around mid-April.

Information relevant to the IPO will be contained in a registered prospectus for the offer of shares in Contact.

The decision which we are now announcing today means that the other 40 percent will be sold to Edison Mission Energy, conditional on the completion of the public offering.

The cornerstone sale process began back last December, when an invitation was issued to potential cornerstone bidders to express an interest in the 40 percent share of Contact.

In February, six potential bidders were shortlisted, based on the indicative bids they submitted. Bidders were also required to meet a number of other criteria, including expertise in the energy sector.

After a period of due diligence, bidders lodged binding bids.

The book value of the company was $888 million.

The successful bidder, Edison Mission Energy, has offered a total of $1,208 million for the 40 percent shareholding.

That is $320 million, or 36%, above the book value of the total company. $1,208 million translates into $5 a share. Under a standstill agreement, Edison Mission Energy will not be able to buy or sell shares in Contact for six months.

It is Government policy to use the proceeds of asset sales to repay debt. The sale of 40% of contact to Edison at this price would, on completion, provide a one-off sum of $1.208 billion for debt repayment.

That will be of benefit to all New Zealanders.

Assuming an interest rate of 6%, that means an interest saving on the debt in the order of $70 million a year.

Contact this year generated profits of around $80 million. Forty percent of those profits is $32 million.

A sale to Edison will benefit the Crown's operating balance by around $40 million, the difference between book value and Edison's bid.

We welcome Edison Mission Energy and their investment in New Zealand, and we look forward to signing the agreement with them on Wednesday.

We are obviously extremely happy with both the cornerstone process and its outcome.

We are hoping to hold a signing ceremony with Edison Mission Energy this Wednesday, and media will be able to talk to Edison Mission Energy about their company then.