In a joint statement issued this morning, Contact and Origin, a 51.4% owner of Contact, said they had decided to terminate the merger implementation agreement the two companies signed in February.

They said the Contact independent directors and the Origin board believed the terms of the proposed merger appropriately reflected the relative value of both companies. They still argued that the merger would have created value for both sets of shareholders, but said there was insufficient support from key Contact shareholders for the merger proposal to be approved under the current terms.

Origin also said it was not prepared to improve the terms of the proposal in favour of Contact minority shareholders, as that would not be in the best interests of Origin shareholders.

“In the absence of an improvement in the merger terms for Contact Energy minority shareholders, the independent directors assess there is insufficient assurance of the merger proposal being successfully executed in an acceptable timeframe,” said Phil Pryke, chairman of the Contact’s independent directors who had already recommended the merger.

Pryke said given this, and the significant costs associated with putting the matter before shareholders, Contact’s independent directors concluded that proceeding would not be in the interests of Contact’s minority shareholders.

“Regulatory issues were not a factor in the decision not to proceed with the merger,” he added.

Contact and Origin had previously advised that they had obtained or were confident of obtaining all regulatory approvals necessary to conclude the merger.

Contact chief executive David Baldwin said while the merger would now not proceed, the problems facing Contact Energy had not changed.

“The company will continue to manage these challenges in the best interests of shareholders,” said Baldwin.

Former Contact chief executive David Hunt said at the time of the proposed merger announcement that Contact needed to secure long-term fuel supply for its current and proposed gas-fired power stations.

According to sources, Origin is likely to now be reluctant to help Contact expand its fledgling upstream operation, preferring instead to sell gas directly to Contact. Origin operates the offshore Taranaki Kupe gas-condensate project.

The merger was to have occurred by way of a dual-listed company (on the Australian Stock Exchange and New Zealand Exchange) structure run by a common board and unified senior management team. Contact minority shareholders would have owned 24.3% of the merged business and Origin shareholders the remaining 75.7%.

Institutional Contact shareholders had consistently said the merger proposal significantly undervalued Contact and was a takeover by stealth of New Zealand’s largest listed energy company.