Origin already owns 51.4% of Contact and had proposed a A$7.2 billion market cap merger that would see the two companies become one while maintaining a dual listing on the ASX and NZX.
But New Zealand-based investors in Contact have voiced their dissatisfaction with the deal since it was announced in February, calling it a thinly-veiled takeover.
ôWe are disappointed that we have not gained sufficient support from Contact shareholders,ö says Kevin McCann, chairman of Origin Energy. ôThe board has reluctantly concluded that the management time, effort and cost in pursuing a merger, which market and shareholder feedback indicate is unlikely to approved, is not justified.ö
Under the deal, minority New Zealand shareholders, which now own 48.6% of ContactÆs shares, would be left with 24.3% of the merged group without any money changing hands.
Investors had been calling on Origin to improve the terms of the transaction, but McCann says: ôWe have concluded that to improve the terms of the merger for ContactÆs minority shareholders would not be in the best interests of Origin shareholders.ö
The pull back comes just days before the companies were due to send an explanatory memorandum to shareholders outlining the proposed merger. ContactÆs shares on the NZX dropped nearly 4.5% to NZ$7.17 on Wednesday following the announcement.
OriginÆs decision removes one of the biggest M&A deals from New ZealandÆs 2006 pipeline.
And it marks the second failed attempt by Contact EnergyÆs independent directors to offload the business. In 2001 they backed a bid by AmericaÆs Edison Mission to purchase the business for NZ$3.85 a share, a deal that was also thwarted by local minority investors.
This time the chairman of ContactÆs independent directors, Phil Pryke, and other key directors unanimously supported the Origin merger despite a history of local shareholder resistance.
ôIt was always surprising to us that the independent directors would collectively back a takeover when they knew that shareholders would be looking for a better price,ö says one Auckland based source.
Investment bank First NZ Capital had been preparing an independent valuation report on the proposed merger.