Sharechat Logo

Contact's Canute act fails to stem tide

By Nick Stride

Friday 28th April 2000

Text too small?
Contact Energy share price
Contact Energy's share price has continued its slide despite a share buyback programme, creating a costly headache for cornerstone shareholder Edison Mission Energy.

Contact announced late last month it would buy back 5% of its shares on the market from March 31. It said the shares were trading at a "substantial discount" to their fair value. The buyback was "a highly attractive investment opportunity."

The programme also gave Edison, which owns 40% of Contact, a temporary reprieve from the demands of its financiers.

Edison paid for its Contact buy partly through the issue of Edison Contact Finance Ltd redeemable preference shares. The terms of the $400 million issue specify a debt-to-valuation ratio of 0.65, meaning Edison is in breach of the terms if Contact's share price is below $2.55 on May 14, just two weeks away.

For every 1c fall below $2.55 Edison must stump up a margin call of $2.43 million. At Wednesday's closing price of $2.43 the bill was $28.3 million.

The terms give Edison an unspecified "cure" period to remedy a breach. But with Contact's share buyback failing to prop up the price the US company may have to come up with another tactic.

The buyback programme aims to gather 30.2 million shares, but at the close of trading on Wednesday it had secured only 2.87 million shares at a cost of $7.4 million.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Sky continues sports drive with extension to netball rights
Apple's asset-shuffling puts $270m value on PowerbyProxi
Fonterra lifts payout forecast on improving global dairy prices
22nd October 2019 Morning Report
NZ dollar hovers near 64 US cents in favourable risk environment
Broader review powers eyed for Climate Change Commission
MARKET CLOSE: NZ shares edge lower as global ructions weigh; Tourism Holdings sinks
NZ dollar rises as markets bet on US interest rate cut
Fonterra seeks further changes to dairy act
Tilt, Oji say transmission changes may discourage new generation

IRG See IRG research reports