The O'Brien Column: BIL sells the brighter side of life

Friday 1st June 2001

More company reorganisation, tough talk and another dose of optimism from Brierley Investments were matters worth noting in statements to the Stock Exchange over the past week.

Brierley Investments' comments accompanying the announcement that it had sold 28.7% of Australian building products company James Hardie Industries seemed to be another opportunity for the investment group to extol a resurrection process of which little evidence has been seen so far.

The statement said the sale of the shares would realise significant value for BIL's shareholders and was consistent with the company's primary objectives as an "active investment management company."

BIL sold the shares for $A567 million, compared with a book value of about $A333 million, giving a gain over book value of about $A234 million.

The sale proceeds would be used for general corporate purposes including, but not limited to, repayment of debt and making new investments.

It was said the sale would have a positive impact on earnings a share and net tangible assets a share in the year ended June 30.

Inevitably, chief executive Greg Terry was quoted in glowing terms about BIL's fortunes. "The proceeds of the sale will enable us to strengthen further our balance sheet to allow us to exploit future investment opportunities."

That was similar to Mr Terry's statement in the report for the six months ended December 31 when he said BIL would continue to look for undervalued growth companies with good, profitable businesses, which would allow the company to unlock substantial shareholder value.

Freeing up $A567 million should, after debt repayment, give BIL the chance to move on one or more of those businesses, but it is hard to see how the "investment management group" can unlock substantial shareholder value in under-
valued companies with good, profitable businesses, unless the latter have suffered in sharemarket downturns.

Such companies are usually well-valued if sharemarkets are in reasonable shape.

On the bright side, BIL said it was expected the James Hardie sale would allow the group to report a profit for the year ended June 30. The interim report had said the company was not expected to make a profit this financial year.

Assuming the full profit of $A234 (about $NZ294 million) was added to net asset backing, the latter would rise 4.3NZc to each share, lifting nta to 73NZc from the 69c in the interim report.

Market observers will, as the saying goes, wait to see what happens next. They will also wait to see what happens next between meat processors Richmond and PPCS.

Richmond chairman Sam Robinson's statement about the matter last week was worded in terms that were unusually strong for the head of a listed company.

PPCS' intention to bid for 60% of Richmond's shares was described as again raising questions of trust, openness and integrity. Mr Robinson said there appeared an abyss between what PPCS said and what it did and that greatly concerned him. There was more in the same vein, which was well-publicised in the daily press.

It will be interesting to see what Mr Robinson's future will be at Richmond if PPCS gets control.

Trans Tasman Properties' major shareholder, SEA Holdings, entered the tough talk field when it said it was strongly opposed to any consideration of the liquidation of Trans Tasman Properties and Australian Growth Properties.

It would not hesitate to use its majority holding to defeat any such motion and would expect Trans Tasman, as the outright majority shareholder in Australian Growth, to similarly vote down any such proposal "put forward by short-term speculators in that company's shares."

Trans Tasman proposes considerable restructuring after shareholders, as opposed to convertible noteholders, defeated a proposal to convert shares to secured bonds.

The market was unimpressed, knocking 2c off Trans Tasman's share price last week, to close at 22c, which was 28.5% of the latest reported nta.

It was even less impressed with Telecom's placement of 91 million new shares with institutions at $5.50 each, intending to use the proceeds to repay debt.

That share price fell 30c after the announcement, before recovering 8c by the end of the week.

It was an interesting reaction, given Telecom said it was strengthening its balance sheet and would repay short-term debt. Placements of large numbers of shares are often made at a discount to market price, irrespective of what small shareholders might feel about the practice.

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