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Reading between the lines

By Peter V O'Brien

Friday 5th September 2003

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The studied use of language in some company announcements would do credit to government ministers' non-answers to questions in Parliament.

Directors and executive are capable of putting convoluted spins on bad news to show it in the best light and are equally adept at attempting to divert attacks on their actions.

Their response to share raids and/or takeover offers usually require outsiders to read between the lines, if they lacked advance warning of the actions.

Independent assessments of "fair" prices for companies are made on the basis of true asset values and the ability of assets to generate future profit. Those assessments can be sterile in situations where a majority shareholder bids for the remaining capital.

Calculation of fair prices carries the tacit point that an alternative bidder might be available, an unlikely proposition where a company is already a subsidiary of another.

A tough bidder can make a take-it-or-leave-it offer in those circumstances but that attitude could backfire if key shareholders stalled for a better deal and the bidder had a strong desire for the target.

Investors have three offers for New Zealand companies before them: SK Foods International for the remaining 41% of food processor Cedenco; Toll Holdings' resisted bid for Tranz Rail; and Independent Newspapers for the outstanding one-third of Sky Television Network.

The existence of an offer is the only common element in the three cases and the language of announcements reflected that fact.

SK Foods managing director Scott Slayer said Cedenco was "not well suited to a public company environment."

SK Foods had concluded that Cedenco's small size and the narrow commodity-based nature of much of its business meant it was better suited to a private company arena.

The deal seems likely to go through, given a revised offer is within an independent valuation range, there is unlikely to be an alternative offeror and the price is higher than the market level for some time.

INL's offer for Sky Television was couched in formal language with no hint of emotion. Several other documents are needed before the offer and acquisitions are finalised but it seems the deal should go through, subject to minor amendment.

The Toll-Tranz Rail saga is far from amicable. Recent language on both sides reflected the fact, although we now learn that representatives of the companies discussed some matters last week.

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