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:

NZ dollar steady ahead of Fed decision, NZ GDP
Vital proceeds with $37m first stage of Wakefield Hospital redevelopment
Risks from exploration ban coming to pass
Pushpay lifts annual earnings guidance; shares rise
Treasury mindful of gaps in living standards framework
Cannasouth slumps on debut as investors back blue-chips
Zespri signals profit growth, trims expected fruit and services payment
Wider annual current account deficit meets expectations
Wider annual current account deficit meets expectations
19th June 2019 Morning Report

IRG See IRG research reports