Origin Energy’s NZ$1.6bn acquisition of a 51.4% equity interest in Contact Energy
Deutsche Bank was sole financial adviser to Origin Energy
In October, Australia’s Origin Energy acquired a 51.2% stake in New Zealand’s Contact Energy from US-based Edison’s Mission Energy, the largest takeover bid in New Zealand in 2004. Under the New Zealand Takeovers Code, Origin was then forced to make a fully-funded offer to acquire the remaining shares in Contact on the same terms.
Origin was unable to use conventional financing because there was insufficient headroom in its debt covenants and it did not want to turn to the equity markets because minorities were unlikely to accept its offer. To solve the problem, Deutsche Bank created a hybrid security, called convertible undated preference shares (CUPS). These are legally considered equity – but not ordinary shares – so that they did not break the debt covenants. Deutsche also provided committed funding through the CUPS.
In the event, acceptances were received on just 0.27% of the outstanding shares, raising Origin’s stake to 51.4%. As a result of the CUPS solution, Origin was able to submit a competitive cash-only bid, maintain an A- Standard & Poor’s rating, minimise any equity requirement and maintain headroom under existing covenants.
