Contact proposes to take over Manawa Energy

Wednesday, 11 September 2024

Contact Energy has agreed to buy fellow electricity generator Manawa Energy for $1.9 billion in cash and shares.

Its proposal would need to be cleared by the Commerce Commission and it received an objection from one electricity retailer and a cool response from Resources Minister Shane Jones.

Contact chief executive Mike Fuge said the proposed acquisition was about “two independent energy companies coming together” and would enable Contact to sell more electricity to wholesale customers under fixed contracts.

The companies’ generating assets complemented one another in the North and South Islands in part because their hydro schemes tended to generate more power at different times of the year, he said.

“Contact’s South Island hydro power stations produce more in the summer following the snow-melt, while Manawa’s hydro assets in the North Island catch more rainfall in the winter.”

Margaret Cooney, chief operating officer of British-owned power retailer Octopus Energy, quickly signalled its opposition to the transaction, saying it would be bad for competition.

“Market concentration has already been identified as problematic in the industry and this only compounds it as there will be one less competitor in the market,” she said.

Jones also appeared doubtful.

“I want to respect the fact that the Commerce Commission has its statutory duties, but ongoing consolidation within the power sector — if it doesn't lead to greater competition — is hardly an ideal outcome for our economic resilience,” he said.

Contact was valued at $6.7 billion on the NZX ahead of the announcement, while Manawa Energy was valued at $1.3b.

The 48% takeover premium being offered was not dissimilar to other sharemarket acquisitions over the past few years, Contact said.

It would also assume Manawa’s $400m debt.

Shares in Manawa Energy jumped by 37% to $5.50 shortly after trading opened on the NZX after the proposed deal was announced, while Contact’s share price was unchanged at $8.40.

Contact would appear likely to remain the third most-valuable power company on the NZX if the deal went through, behind Meridian Energy and still probably behind Mercury Energy, but much closer to Mercury’s size.

Manawa’s majority shareholders Infratil and Tect, had agreed the terms of the cash and scrip offer, which would see Manawa’s shareholders end up with an 18% share of the merged firm, Contact said in a statement.

Manawa’s chairperson Deion Campbell would join Contact’s board under the arrangement.