On 4th August 2015 Australian stock exchange-listed Origin announced it would sell its 53.1 per cent of Contact Energy, the Wellington-based electricity generator-retailer and owner of gas distribution and LPG businesses. Origin had agreed to sell all of its 389,314,921 shares in Contact at a fixed price of $NZ4.65 a share to realise $NZ1.8 billion. Shares in the company last traded at $NZ5.02 on the NZX.
Apply the comparable transactions approach for valuing Contact.
Choose three comparable transactions and three transaction multiples.
Clearly state which comparable transactions and which transaction multiples you have chosen and why.
1. Estimate Contact’s intrinsic price per share.
2. Based on your selected comparable transactions and transaction multiples what control premium should have been applied to Contact’s price per share?
3. Based on your estimated intrinsic price per share, how much money did Origin leave on the table? Explain Origin’s rationale?