Doubts over Contact offer

Edison Mission wants to buy a further 49 million shares in Contact to add to the 42.7% stake it already holds. It has offered a price between $2.90 and $3.25.

An appraisal report into the offer by Grant Samuel has described the offer as fair "in so far as the price received by those shareholders who choose to sell to EME Pacific is likely to equal or exceed the fair market value of a portfolio interest in Contact Energy.

However the report goes on to question whether the price reflects Edison's position as a major shareholder.

"It should be recognised that the price will be less then the full underlying value of Contact Energy shares that might be reflected in the price paid in a full takeover offer.

"Although EME Pacific holds less than 50% of the issued capital of Contact Energy, a shareholding in excess of 40% is generally regarded as giving the holder effective control and it is open to debate as to whether the purchase price needs to be equal to the full underlying value to be fair in these circumstances.

The report also says that if Edison Mission increases its stake to over 50% it could sell its shareholding to a third party who may be prepared to pay a price to in excess of the sharemarket price.

Edison paid $5 a share for its original stake while the shares were floated to the public at $3.10.

In a letter to shareholders Contact chairman Phil Pryke points out that in its recently completed share buyback the company paid between $2.33 and $3.08 per share with an average price of $2.69.

"In buying at those prices, Contact was indicating that it considered the shares were worth more than that, and accordingly represented a good investment of company funds," says Mr Pryke.

Mr Pryke also reminds shareholders that the company's independent directors do not intend to sell any shares in Contact that they directly control in response to the EME Pacific offer.

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