Mike Fuge: Contact Energy CEO on the company merging with Manawa Energy

Contact Energy has confirmed it reached an agreement to take over electricity generator Manawa Energy in a near $2.3-billion merger.

Contact would pay a combination of cash and its own shares to the equivalent of $5.95 for each Manawa share - and it hopes to finalise the arrangement by early next year.

CEO Mike Fuge says this investment will help diversify Contact's generating portfolio.

"What this enables us to do is to firm up our wholesale portfolio and provide more products to commercial industrial New Zealand."

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Episode Transcript

Speaker 1 (00:00):
Now, Contact Energy has reached an agreement to take over
Mana were Energy in a near two point three billion
dollar merger. Contacts Chief executive Mike fuj said the merger
would make Contact more resilient and diversify its generating portfolio.
The deal is still subject to approval by the Commerce Commission,
the High Court and shareholders, but the companies would like
the deal done by early next year, and Contact Energy

(00:20):
CEO Mike futures.

Speaker 2 (00:21):
With us now, Mike, Hi, how are you going from?
Very well?

Speaker 1 (00:25):
Thank you? Do you reckon? You'll get permission for this
given what is going on with the criticism, Jen Taylor's getting.

Speaker 2 (00:31):
Yes. Absolutely, Look, we're very confident that we will. The
Commerce Commission obviously have to do their due diligence and
perform the regulatory duty. But we wouldn't be have done
today's announcement if we didn't believe we had a very
good case. Remember, this isn't about today's headlines. This is
about a sixty year investment and so that's what the

(00:52):
perspective people have to hold there.

Speaker 1 (00:54):
Right, isn't Mana We're a generator and you guys.

Speaker 2 (00:57):
As a generator. Yeah, Mana as a generator and we're
a generator and retailer.

Speaker 1 (01:01):
Yeah, and so you would be strengthening your position as
a gen tailor, which is the very thing that is
copying the criticism.

Speaker 2 (01:08):
No. Look, we can more than adequately supply our retail
position as it stands today. What this enables us to
do is to firm up our wholesale portfolio and provide
more products to commercial industrial New Zealand and to tear
to retailers that we can more than adequately already supply
our retail Yeah.

Speaker 1 (01:27):
I just wonder, I mean, because surely the situation they
would look at is that they would they would ask
the question, is it better off with Contact owning this
business or this business supplying wholesale to Contact? And surely
if that's if that's the question they have to ask,
they'll probably prefer the latter, wouldn't that?

Speaker 2 (01:43):
No, not necessarily, because remember the hydro that we're buying
from Manua is winter weighted and our hydro is summer
weighted spring summer. And the combination actually in and of
itself frees up generation to be put into market because
we're not as individuals trying to hedge our position. We've
got a combined portfolio which we can manage. So overall,

(02:06):
our assessment is it's better for the market. It frees
up generation, and as I said earlier today, it underpins
more renewable intimittent renewable generation, because that's the big dilemma
we have to solve. What do we do about these
intimate renewables.

Speaker 1 (02:20):
Yeah, okay, did you see the method X news.

Speaker 2 (02:24):
Yes, yes, that they are considering, and that's a function
of the gas market. Meth and X does underpin the
gas market. The upstream gas market has had some real
issues over the last year or so in terms of
dry wells being drilled, and so it's probably a natural outcome.
And what we really need there is we need some
drilling success from the upstream players and that should bring

(02:46):
that back under control.

Speaker 1 (02:48):
I'm reading this the very last thing that they said.
I'm reading as unless there is more gas, we're shutting
the whole thing down. Are you reading it like that?

Speaker 2 (02:55):
That is Look, that's the logical outcome. But the critical
thing is that we still have gas reserves in this
country and we need to go after and drill for them,
and that will stabilize the situation.

Speaker 1 (03:06):
Do you believe, Mike that there's more gas out there.

Speaker 2 (03:09):
There's always more gas because did you see what Richard
Tweety said yesterday. Yes, Richard did say we do need
to He did say Method X should close and alng
import and alan G import would be a good insurance policy.
And we are looking at that. But I think obviously

(03:31):
with Taranaki's still got a bit to give. All in
gas drilling is always sometimes you had a good run,
sometimes you had a bad run.

Speaker 1 (03:41):
Mike, he actually said we're running out of gas as
a country. Do you think he's wrong? I want you
to tell me he's wrong.

Speaker 2 (03:48):
I wouldn't put it that way. Gas is the matter
of the technology you bring to bear, the investment you make,
and how you think about the reservoirs. It's a complex
technical subject. No one near ever really runs out of gas.
It just becomes economic at some point to produce it.

Speaker 1 (04:04):
Are you paying meth and X as much for the
gas as the government.

Speaker 2 (04:07):
Is, that's commercially confidential. We did a very We did
a good We did a good commercial deal with meth
and X, which stabilized the electricity market very rapidly, and
prices have come back down to the lowest in the
Western world. That's quite not quite the dramatic headline as

(04:31):
it was a few weeks ago. But the world has
turned in the electricity market.

Speaker 1 (04:37):
Because it's fallen off off the cliffs so badly. Did
you think, oh geez, we didn't have to pay that
much for the gas after all.

Speaker 2 (04:43):
No, No, that's again, that's like the Manuer deal. That's
just good prudent risk mitigation. And we don't think about
to today and tomorrow's spot. As I said, our time
horizon is always over the medium to long term and
we're looking for common sense and that was the right
thing to do at that particular time. So absolutely no

(05:03):
regrets whatsoever.

Speaker 1 (05:04):
Mike. It's good to talk to you always, as I
really appreciate your time. That's Mike's huge contact Energy CEO.

Speaker 2 (05:09):
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