Contact Energy’s $2 Billion Bid for Manawa: What’s Behind the 59% Premium?

Deal Overview and Consideration

Contact Energy Limited has formally proposed to acquire all shares of Manawa Energy Limited through a court-sanctioned scheme of arrangement. Under the terms of the offer, Manawa shareholders will receive $1.12 in cash plus 0.5830 new Contact shares for each Manawa share held as of the record date. This package values Manawa shares at an implied $6.37 per share, representing a substantial premium of approximately 59% over Manawa’s share price prior to the transaction announcement in September 2024.

The consideration mix of cash and scrip provides Manawa shareholders with immediate value and ongoing exposure to the combined entity’s future growth. The scrip component will entitle shareholders to approximately 18.5% ownership in the merged group, positioning them within a leading New Zealand energy company with a diversified renewable generation portfolio.

Strategic Rationale and Synergies

The merger aligns with Contact’s Contact26 strategy focused on decarbonisation and renewable growth. Manawa’s hydroelectric assets complement Contact’s geothermal and hydro portfolio, enhancing generation diversity and resilience. The combined entity will benefit from a geographically diversified asset base spanning both the North and South Islands, including significant hydro, geothermal, solar, and battery storage projects.

Contact anticipates annual cost synergies of $23–28 million and portfolio benefits of $10–20 million, expected to be realised within two years post-completion. These savings largely stem from eliminating duplicated corporate functions and optimising operational efficiencies. The merger also accelerates the realisation of Manawa’s development pipeline, which includes over 1,500 MW of secured renewable generation options.

Governance and Shareholder Support

The scheme has strong backing from Manawa’s board and its two largest shareholders, Infratil Limited and TECT Community Trust, who collectively hold 77.9% of Manawa shares and have entered into voting agreements to support the transaction. Manawa’s directors unanimously recommend shareholders vote in favour of the scheme, subject to no superior proposal emerging.

Post-merger, Manawa’s Chair, Deion Campbell, is expected to join Contact’s board to support integration and continuity. The scheme meeting is scheduled for 18 June 2025, with implementation targeted for 11 July 2025, pending shareholder and court approvals and satisfaction of customary conditions.

Risks and Considerations

While the transaction promises strategic and financial benefits, shareholders should consider risks including integration challenges, potential volatility in Contact’s share price affecting the scrip consideration value, regulatory uncertainties in New Zealand’s electricity market, and possible tax implications arising from the scheme.

Additionally, the offer is conditional on various approvals and the absence of material adverse changes. Shareholders outside New Zealand and Australia classified as Ineligible Overseas Shareholders will receive cash proceeds from the sale of their scrip consideration shares rather than shares directly.

Investors are encouraged to review the detailed scheme booklet, including the Independent Adviser’s Report prepared by Grant Samuel, to fully understand the merits and risks of the proposal.