Contact bid appraiser draws broker fire on 'undervaluing'

By Nick Stride

Friday 19th October 2001

Contact Energy's appointment of Grant Samuel as the independent appraiser of Edison Mission Energy's takeover bid has attracted sniper fire from brokers and fund managers.

One fund manager is considering writing to Contact chairman Phil Pryke to voice its concerns.

Some sharebroking analysts claim Grant Samuel undervalued Contact when it last wrote a report in May and may do so again.

The valuer at that time found "fair" Edison's offer in a range of $2.95 to $3.25 to lift its stake from 42% to 51%.

Edison ended up paying $3.10 and is now offering $3.85 a share for the 49% of the company it does not already own.

Contact chairman Phil Pryke said it would not be appropriate for him to comment on Grant Samuel's appointment.

But he said investors should bear in mind that "a large number of institutional shareholders piled into that [May] offer at the time.

"Also, most of the brokers' reports before this latest offer came along were valuing the shares at well below [the offer price]."

Mr Pryke said the independent directors - himself, Tim Saunders and John Milne - had yet to come to a view of the offer's adequacy. Nor had they decided whether a report they had commissioned from investment bank Cameron & Co would be made available to the market.

Alliance Capital head of equities Andrew Bascand said he didn't have a problem with Grant Samuel's appointment.

"My real concern is that whoever is doing the independent report has full access to information that Contact and Edison have," he said. "That information includes the state of gas contract negotiations that are absolutely critical to the valuation of Contact."

If institutions were not happy with Grant Samuel's valuation, he added, holders of 10% of the shares could club together and commission their own.

Arcus Investment Management's Simon Botherway said Grant Samuel was "the obvious candidate" for the job as it had valued Contact before.

But much had changed since May.

"With the enormous rationalisation in the market there is substantially less competition. The valuation of generation plant has increased as a result, so our valuation of the stock has increased very significantly. I would expect the Grant Samuel valuation to reflect that," he said.

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